EFG International AG

Annual Report (ESEF) • Jun 8, 2022

Report 506700PR1R98BSF811392021-01-012021-12-31iso4217:CHF506700PR1R98BSF811392020-01-012020-12-31iso4217:CHFxbrli:shares506700PR1R98BSF811392019-01-012019-12-31506700PR1R98BSF811392021-12-31506700PR1R98BSF811392020-12-31506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMemberifrs-full:IssuedCapitalMember506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMemberifrs-full:SharePremiumMember506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMemberifrs-full:OtherReservesMember506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMemberifrs-full:RetainedEarningsMember506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMemberifrs-full:EquityAttributableToOwnersOfParentMember506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMemberifrs-full:NoncontrollingInterestsMember506700PR1R98BSF811392019-12-31ifrs-full:PreviouslyStatedMember506700PR1R98BSF811392019-12-31ifrs-full:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIFRSsMemberifrs-full:SharePremiumMember506700PR1R98BSF811392019-12-31ifrs-full:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIFRSsMemberifrs-full:OtherReservesMember506700PR1R98BSF811392019-12-31ifrs-full:IncreaseDecreaseDueToChangesInAccountingPolicyRequiredByIFRSsMemberifrs-full:RetainedEarningsMember506700PR1R98BSF811392019-12-31ifrs-full:IssuedCapitalMember506700PR1R98BSF811392019-12-31ifrs-full:SharePremiumMember506700PR1R98BSF811392019-12-31ifrs-full:OtherReservesMember506700PR1R98BSF811392019-12-31ifrs-full:RetainedEarningsMember506700PR1R98BSF811392019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember506700PR1R98BSF811392019-12-31ifrs-full:NoncontrollingInterestsMember506700PR1R98BSF811392019-12-31506700PR1R98BSF811392020-01-012020-12-31ifrs-full:RetainedEarningsMember506700PR1R98BSF811392020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember506700PR1R98BSF811392020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember506700PR1R98BSF811392020-01-012020-12-31ifrs-full:OtherReservesMember506700PR1R98BSF811392020-01-012020-12-31ifrs-full:IssuedCapitalMember506700PR1R98BSF811392020-01-012020-12-31ifrs-full:SharePremiumMember506700PR1R98BSF811392020-12-31ifrs-full:IssuedCapitalMember506700PR1R98BSF811392020-12-31ifrs-full:SharePremiumMember506700PR1R98BSF811392020-12-31ifrs-full:OtherReservesMember506700PR1R98BSF811392020-12-31ifrs-full:RetainedEarningsMember506700PR1R98BSF811392020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember506700PR1R98BSF811392020-12-31ifrs-full:NoncontrollingInterestsMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:RetainedEarningsMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:OtherReservesMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:IssuedCapitalMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:SharePremiumMember506700PR1R98BSF811392021-01-012021-12-31ifrs-full:OtherEquityInterestMember506700PR1R98BSF811392021-12-31ifrs-full:IssuedCapitalMember506700PR1R98BSF811392021-12-31ifrs-full:SharePremiumMember506700PR1R98BSF811392021-12-31ifrs-full:OtherReservesMember506700PR1R98BSF811392021-12-31ifrs-full:RetainedEarningsMember506700PR1R98BSF811392021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember506700PR1R98BSF811392021-12-31ifrs-full:OtherEquityInterestMember506700PR1R98BSF811392021-12-31ifrs-full:NoncontrollingInterestsMember Consolidated income statement for the year ended 31 December 2021 Note Year ended 31 December 2021 CHF millions Year ended 31 December 2020 CHF millions Interest and discount income 389.4 476.4 Interest expense (130.1) (176.5) Net interest income 13 259.3 299.9 Banking fee and commission income 1,086.9 834.6 Banking fee and commission expense (330.4) (178.9) Net banking fee and commission income 14 756.5 655.7 Dividend income 15 1.8 2.1 Net trading income and foreign exchange gains less losses 16 133.2 138.6 Fair value gains less losses on financial instruments measured at fair value 17 80.2 19.3 Gains less losses on disposal of investment securities 18 (6.3) 6.8 Other operating income 19 29.9 8.2 Net other income 238.8 175.0 Operating income 1,254.6 1,130.6 Operating expenses 20 (967.9) (951.5) Provisions 49 (114.0) (25.5) Loss allowances expense 22 72.7 (1.3) Profit before tax 245.4 152.3 Income tax expense 23 (31.5) (30.5) Net profit for the year 213.9 121.8 Net profit for the year attributable to: Net profit attributable to equity holders of the Group 205.8 115.3 Net profit attributable to non-controlling interests 8.1 6.5 213.9 121.8 Note Year ended 31 December 2021 CHF Year ended 31 December 2020 CHF Earnings per ordinary share Basic 24 0.62 0.39 Diluted 24 0.59 0.37 The notes on pages 96 to 214 form an integral part of these consolidated financial statements Consolidated statement of comprehensive income for the year ended 31 December 2021 Note Year ended 31 December 2021 CHF millions Year ended 31 December 2020 CHF millions Net profit for the year 213.9 121.8 Other comprehensive income Items that may be reclassified subsequently to the income statement: Net gains/(losses) on hedge of net investments in foreign operations, with no tax effect 31.4 1.9 (4.9) Currency translation differences, with no tax effect (12.3) (13.2) Net (losses)/gains on investments in debt instruments measured at fair value through other comprehensive income, with no tax effect (39.8) 9.6 Net realised gains/(losses) on debt instruments measured at fair value through other comprehensive income reclassified to the income statement, with no tax effect 18 6.3 (6.8) Change in loss allowance on debt instruments measured at fair value through other comprehensive income, with no tax effect 0.2 Items that will not be reclassified to the income statement: Retirement benefit gains/(losses) 52 118.0 (58.0) Tax effect on retirement benefit (gains)/losses 39 (23.2) 11.4 Net losses on investments in equity instruments measured at fair value through other comprehensive income (0.1) (1.8) Tax effect on net losses on investments in equity instruments measured at fair value through other comprehensive income 0.4 Total other comprehensive income for the year, net of tax 50.8 (63.1) Total comprehensive income for the year 264.7 58.7 Total comprehensive income for the year attributable to: Equity holders of the Group 258.5 52.4 Non-controlling interests 6.2 6.3 264.7 58.7 The notes on pages 96 to 214 form an integral part of these consolidated financial statements Consolidated balance sheet at 31 December 2021 31 December 2021 31 December 2020 Note CHF millions CHF millions Assets Cash and balances with central banks 27 9,801.5 8,642.9 Treasury bills and other eligible bills 29 1,452.8 1,026.9 Due from other banks 30 2,562.3 3,097.0 Derivative financial instruments 31 973.6 1,154.7 Financial assets at fair value through profit and loss 32 1,807.3 2,132.2 Investment securities 33 5,877.8 4,953.0 Loans and advances to customers 34 18,225.6 18,223.0 Property, plant and equipment 36 334.6 335.2 Intangible assets 37 229.3 260.4 Deferred income tax assets 39 61.9 96.5 Other assets 40 816.3 715.4 Total assets 42,143.0 40,637.2 Liabilities Due to other banks 45 556.0 443.6 Due to customers 46 32,516.8 30,841.6 Derivative financial instruments 31 1,075.8 1,378.7 Financial liabilities at fair value 47 487.6 492.1 Financial liabilities at amortised cost 48 4,222.1 4,516.5 Current income tax liabilities 19.0 24.6 Deferred income tax liabilities 39 19.9 23.0 Provisions 49 130.4 40.6 Other liabilities 51 641.2 762.7 Subordinated loans 53 182.7 355.8 Total liabilities 39,851.5 38,879.2 Equity Share capital 54 152.2 148.3 Share premium 2,014.7 1,979.9 Other reserves 55 138.2 84.2 Retained earnings (407.2) (511.2) Total shareholders’ equity 1,897.9 1,701.2 Additional equity components 56 351.0 – Non-controlling interests 58 42.6 56.8 Total equity 2,291.5 1,758.0 Total equity and liabilities 42,143.0 40,637.2 The comparative information has been changed, please refer to note 3. The notes on pages 96 to 214 form an integral part of these consolidated financial statements Consolidated statement of changes in equity for the year ended 31 December 2021 Attributable to owners of the Group CHF millions Note Share capital Share premium Other reserves Retained earnings Total share-holder’s equity Additional equity components Non-controlling interests Total equity Balance at 31 December 2019 145.8 1,858.8 286.0 (563.9) 1,726.7 - 54.1 1,780.8 Change in accounting policy * 3 95.3 (131.3) 36.0 Balance at 01 January 2020 145.8 1,954.1 154.7 (527.9) 1,726.7 - 54.1 1,780.8 Net profit for the year 115.3 115.3 6.5 121.8 Net losses on hedge of net investments in foreign operations, with no tax effect 31.4 (4.9) (4.9) (4.9) Currency translation difference, with no tax effect (13.0) (13.0) (0.2) (13.2) Net gains on investments in debt instruments measured at fair value through other comprehensive income, with no tax effect 9.6 9.6 9.6 Net realised losses on debt instruments measured at fair value through other comprehensive income reclassified to the income statement, with no tax effect (6.8) (6.8) (6.8) Change in loss allowance on debt instruments measured at fair value through other comprehensive income, with no tax effect 8.4 0.2 0.2 0.2 Net losses on investments in equity instruments measured at fair value through other comprehensive income (1.8) (1.8) (1.8) Tax effect on net losses on investments in equity instruments measured at fair value through other comprehensive income 0.4 0.4 0.4 Retirement benefit loss 52 (58.0) (58.0) (58.0) Tax effect on retirement benefit loss 39 11.4 11.4 11.4 Total comprehensive income for the year – – (62.9) 115.3 52.4 – 6.3 58.7 Ordinary shares repurchased 54 (0.3) (2.5) (2.8) (2.8) Dividend paid on ordinary shares 57 (87.9) (87.9) (87.9) Dividend paid on Bons de Participation 57 – Transactions with non-controlling interests 0.1 1.7 1.8 - (1.4) 0.4 Disposal of subsidiaries (2.1) (2.1) (2.1) Changes in ownership interests with no gain or loss of control (5.3) (5.3) (2.2) (7.5) Equity-settled share-based plan expensed in the income statement 63 18.4 18.4 18.4 Employee equity incentive plans exercised 63 2.7 26.6 (26.0) (3.3) 0.0 0.0 Balance at 31 December 2020 148.3 1,979.9 84.2 (511.2) 1,701.2 – 56.8 1,758.0 The comparative information has been changed, please refer to note 3. The notes on pages 96 to 214 form an integral part of these consolidated financial statements Consolidated statement of changes in equity for the year ended 31 December 2021 continued Attributable to owners of the Group CHF millions Note Share capital Share premium Other reserves Retained earnings Total share-holder’s equity Additional equity components Non-controlling interests Total equity Balance at 01 January 2021 148.3 1,979.9 84.2 (511.2) 1,701.2 – 56.8 1,758.0 Net profit for the year 205.8 205.8 8.1 213.9 Net gain on hedge of net investments in foreign operations, with no tax effect 31.4 1.9 1.9 1.9 Currency translation difference, with no tax effect (10.4) (10.4) (1.9) (12.3) Net losses on investments in debt instruments measured at fair value through other comprehensive income, with no tax effect (39.8) (39.8) (39.8) Net realised gains on debt instruments measured at fair value through other comprehensive income reclassified to the income statement, with no tax effect 18 6.3 6.3 6.3 Net losses on investments in equity instruments measured at fair value through other comprehensive income (0.1) (0.1) (0.1) Retirement benefit gains 52 118.0 118.0 118.0 Tax effect on retirement benefit gains 39 (23.2) (23.2) (23.2) Total comprehensive income for the year – – 52.7 205.8 258.5 – 6.2 264.7 Dividend paid on ordinary shares 57 (89.0) (89.0) (89.0) Dividend paid on Bons de Participation 57 – – Distribution to Additional equity components (3.4) (3.4) (3.4) Transactions with non-controlling interests 0.1 1.7 1.8 1.8 Disposal of subsidiaries 1.9 1.9 1.9 Changes in ownership interests with no gain of control 58 1.5 19.5 (14.5) 6.5 (20.4) (13.9) Additional equity components issuance 56 – – 351.0 351.0 Equity-settled share-based plan expensed in the income statement 63 26.8 26.8 26.8 Employee equity incentive plans exercised 63 2.3 13.6 (25.5) 3.2 (6.4) (6.4) Balance at 31 December 2021 152.2 2,014.7 138.2 (407.2) 1,897.9 351.0 42.6 2,291.5 The notes on pages 96 to 214 form an integral part of these consolidated financial statements Consolidated cash flow statement for the year ended 31 December 2021 Year ended 31 December 2021 CHF millions Year ended 31 December 2020 CHF millions Cash flows from operating activities Interest received 393.6 495.9 Interest paid (137.1) (199.8) Banking fee and commission received 1,069.4 832.0 Banking fee and commission paid (351.3) (187.5) Dividend received 15 1.8 2.1 Net trading income 16 133.2 138.6 Other operating income receipts/(payments) 24.5 (3.1) Staff costs paid (729.1) (679.6) Other operating expenses paid (139.3) (243.8) Income tax paid (28.5) (24.5) Cash flows from operating activities before changes in operating assets and liabilities 237.2 130.3 Changes in operating assets and liabilities Net (increase)/decrease in treasury bills (624.2) 110.9 Net decrease/(increase) in due from other banks (> 90 days) 193.9 (139.2) Net decrease/(increase) in derivative financial instruments 27.9 (56.7) Net (increase) in loans and advances to customers (173.2) (161.7) Net (increase) in other assets (33.5) (163.6) Net increase in due to other banks 93.3 54.4 Net increase in due to customers 1,940.4 1,170.6 Issuance of financial liabilities at amortised cost and fair value 7,428.1 6,393.9 Redemption of financial liabilities at amortised cost and fair value (7,683.8) (7,036.1) Net (decrease) in other liabilities (55.8) (93.6) Net cash flows from operating activities 1,350.3 209.2 Cash flows from investing activities Purchase of securities (3,807.2) (3,212.0) Proceeds from sale of securities 3,060.7 3,578.2 Purchase of property, plant and equipment 36 (7.6) (13.4) Purchase of intangible assets 37 (35.8) (28.9) Proceeds from sale of property, plant and equipment (0.2) 16.0 Net proceeds from disposal of businesses and subsidiaries 130.3 (2.3) Net cash flows (used in)/generated from investing activities (659.8) 337.6 The notes on pages 96 to 214 form an integral part of these consolidated financial statements Consolidated cash flow statement for the year ended 31 December 2021 continued Year ended 31 December 2021 CHF millions Year ended 31 December 2020 CHF millions Cash flows from financing activities Dividend paid on ordinary shares 57 (89.0) (87.9) Dividend paid to non-controlling interests 0.0 (1.4) Ordinary shares repurchased 0.0 (2.8) Proceeds from partial disposal of business 0.0 2.8 Additional equity components issued net of issuance costs 351.0 0.0 Additional equity components distributions (3.4) 0.0 Subordinated loan redeemed (190.8) 0.0 Principal element of lease payments (36.8) (41.1) Transactions with non-controlling interests (17.1) (13.0) Net cash flows from financing activities 13.9 (143.4) Effect of exchange rate changes on cash and cash equivalents (3.6) (46.5) Net change in cash and cash equivalents 700.8 356.9 Cash and cash equivalents at beginning of period 28 11,953.7 11,596.8 Net change in cash and cash equivalents 700.8 356.9 Cash and cash equivalents 12,654.5 11,953.7 The notes on pages 96 to 214 form an integral part of these consolidated financial statements 1. General information EFG International AG and its subsidiaries (hereinafter collectively referred to as ‘EFG International Group’ or ‘The Group’) are a leading global private banking group, offering private banking, wealth management and asset management services. The Group’s principal places of business are in Australia, Bahamas, Cayman, Channel Islands, Dubai, Hong Kong, Liechtenstein, Luxembourg, Monaco, Singapore, Spain, Switzerland, the United Kingdom, and the United States of America. Across the whole Group, the number of employees (FTEs) at 31 December2021 was 3,027 (31 December2020: 3,149). EFG International AG is a limited liability company and is incorporated and domiciled in Switzerland. The Group is listed on the SIX Swiss Exchange with its registered office at Bleicherweg 8, 8022 Zurich. For details of significant shareholders, refer to note 13 of the Parent Company Financial Statements. These consolidated financial statements were approved for issue by the Board of Directors on 22 February 2022. 2. Principal accounting policies The principal accounting policies and accounting judgements applied in the preparation of the consolidated financial statements have been disclosed below and as part of the notes to the Consolidated financial statements where appropriate. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation The consolidated financial statements are for the year ended 31 December2021. These financial statements have been prepared in accordance with those International Financial Reporting Standards (IFRS) and International Financial Reporting Standards Interpretations Committee (IFRS Interpretations Committee) interpretations issued and effective for the year ended 31 December2021. These consolidated financial statements are subject to the approval of the shareholders. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value. The Group’s presentation currency is the Swiss franc (CHF), being the functional currency of the parent company and of its major operating subsidiary, EFG Bank AG. The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December2020. New and amended standards adopted by the Group: The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 01 January 2021: – Covid-19 related rent concessions – amendments to IFRS 16, – Interest Benchmark Reform – amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. These standards and amendments do not have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. New and amended standards not yet adopted: Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2021 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (b) Consolidation (i) Subsidiaries Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The Group applies the acquisition method of accounting to record business combinations. The cost of an acquisition is measured at the fair value of the assets acquired, equity instruments or liabilities undertaken at the date of acquisition including those resulting from contingent consideration arrangements. Costs related to the acquisition are expensed as incurred. If the consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. A listing of the Company’s main subsidiaries is set out in note 44. (ii) Non-controlling interests The Group treats transactions with non-controlling interests that do not result in loss of control as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (iii) Disposal of subsidiaries When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in the income statement. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the income statement. (c) Foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in CHF, which is the Group’s presentation currency, as the functional currency of the parent company and of its major operating subsidiary, EFG Bank AG. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Year-end exchange rates and average exchange rates for translation of foreign denominated subsidiaries for the main currencies are as follows: 2021 2021 2020 2020 Closing rate Average rate Closing rate Average rate USD 0.9122 0.9144 0.8803 0.9388 GBP 1.2295 1.2580 1.2015 1.2040 EUR 1.0331 1.0812 1.0802 1.0703 (d) Comparatives Where necessary, comparative information has been adjusted to conform to changes in presentation in the current year. 3. Change in accounting policies No new accounting standards and interpretations have been published for the reporting period that impact the Group in the current or future reporting periods and on foreseeable future transactions. The Group changed its accounting policy regarding employee equity incentive plans at exercise date. As permitted under IFRS 2, the Group previously did not transfer corresponding amounts between reserves in the Group shareholders’ equity to reflect the settlement of Restricted Stock Units using treasury shares or new shares issued. The Group reviewed the presentation of the shareholders’ equity and changed the accounting policy to present more reliable and relevant information. As a result, when treasury shares or new shares issued are used to settle Restricted Stock Units, the corresponding reserves will be transferred and any difference arising from the variation of the share price between the grant date and the exercise date will be reflected through retained earnings. The change in accounting policy is reflected as a retrospective application. As a result, the below table presents the corresponding change in the comparative information. 01 January 2020 01 January 2020 restated Difference Share capital 145.8 145.8 - Share premium 1,858.8 1,954.1 95.3 Other reserves 286.0 154.7 (131.3) Retained earnings (563.9) (527.9) 36.0 Total shareholders' equity 1,726.7 1,726.7 - In the consolidated cash flow statement, the Group has changed the classification of cash flows from issuance and redemption of structured products from ‘financing activities’ to ‘operating activities’. The Group previously classified these cashflows as ‘financing’ transactions, on the basis that this source of funds was comparable in nature to the receipt of funding from issuance of debt instruments and long-term borrowings. In the second half year of 2021 the Group changed the reporting of these cash flows which are now reported as operating cash flows. The Group made this reporting change to facilitate comparability with financial statements published by competitors. The revised presentation therefore provides more reliable and relevant information. The Group have amended the comparative information for 2020 in the cash flow statement. The affected lines in the comparative information are ‘issuance of financial liabilities at amortised cost and fair value’ and ‘redemption of financial liabilities at amortised cost and fair value’. The reporting change has no impact on the consolidated income statement, consolidated statement of comprehensive income or earnings per share. 4. Critical accounting estimates and judgements in applying accounting policies In the process of applying accounting policies, the Group’s management makes various judgements, estimates and assumptions that may affect the reported amounts of assets and liabilities recognised in the financial statements in future periods. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The different judgements, estimates and assumptions are disclosed in the notes. 5. Risk management EFG International offers private banking and asset management services as well as financial and secured investment finance products with a focus on high-net-worth individuals. In pursuing its business objectives, it is exposed to risks, which may have an impact on its financial, business, social or other objectives. EFG International acknowledges that a strong risk management framework is fundamental in the sustainable management of its business. EFG International is committed to actively managing and mitigating risks specific to its private banking and institutional clients, being particularly vigilant to activities associated with conduct risks, financial crime and operational risks, including compliance and fraud risks. EFG International carefully monitors legacy risks in connection with its nostro life insurance investment portfolio and litigation cases relating to discontinued businesses. EFG International is committed to maintaining a strong risk management framework across the organisation, and to embed it in the day-to-day business activities and decision-making processes. 5.1 Risk governance The EFG International risk management framework sets out the overall governance of risks. Responsibilities of involved stakeholders in the management of risks are clearly defined, as well as terms of reference for its risk and compliance functions. The EFG International risk management framework is underpinned by the EFG International risk appetite framework, which focuses on the approach to risk capacity, risk appetite, risk limits and indicators, documenting the level of risk that EFG International is prepared to incur. Risk management framework Our risk management framework comprises people, policies and processes, and systems and controls designed to ensure that risks are appropriately identified, assessed, measured, monitored and reported, as well as mitigated on an ongoing basis. For EFG International, the risk management framework is of crucial importance in order to: – Ensure everybody understands and controls exposure to risks taken – Ensure that risk exposures are in line with risk capacity and defined risk appetite and strategy – Ensure that our key controls over business risks are functioning effectively – Support the successful implementation of the business strategy – Protect clients from potential risks, such as unsuitable products or excess concentrations – Contribute to the orderly functioning and sound reputation on the markets in which EFG International operates The EFG International risk management framework is enacted in several dimensions: – Approach to risk management – Risk culture – Three lines of defence model – Committees and functions 5.1.1 Approach to risk management EFG International has developed a multidimensional approach to risk management: – There are independent Risk Control and Compliance functions with clearly defined objectives – There is a comprehensive and prioritised list of risk categories (risk taxonomy) – There is a defined risk strategy and risk appetite – There is a coherent and comprehensive set of policies, directives and procedures to govern risk management, including compliance – The effectiveness and efficiency of risk management is supervised by the Board of Directors, with the support and advice of a dedicated Risk Committee The objectives of risk management are to: – Provide transparency on the risks EFG International incurs – Provide independent risk oversight and challenge that risks are appropriately assessed and managed – Enable better management of the risk-return trade-off – Support the Board of Directors in defining an appropriate risk appetite and strategy in line with available risk capacity and ensure the actual risk exposure profile remains in line with these – Ensure that key controls over business risks are functioning effectively – Secure an appropriate degree of protection 5.1.2 Risk culture, core values and ethical standards EFG International believes the behavioural element is key to ensure sound risk management, and that this is guided by the risk culture of the organisation. Accordingly, risk culture is viewed as a core component of effective risk management. To address this topic, EFG International approaches risk culture along four dimensions, in line with Financial Stability Board principles: – Tone from the top: Our Board of Directors, Executive Committee and senior management set the EFG International risk culture, core values and ethical standards; their actions and behaviour reflect the risk culture that is expected throughout EFG International and is communicated through formal and informal channels, to ensure that clients also share EFGI’s risk culture, core values and ethical standards – Accountability: The risk management framework and the related risk policies and directives clearly assign accountability for risk management and decision-making to functions and specific unit heads – Effective communication and challenge: The corporate culture allows for open communication and promotes effective challenge in the decision-making process; this is supported by independent Risk Control, Compliance and Internal Audit – Incentives: Financial and non-financial incentives are monitored to ensure they do not encourage excessive risk-taking The risk awareness and culture programme, which promotes the above-mentioned principles, is focused on the following activities: – Embedding of the risk management and risk appetite frameworks across EFG International – Comprehensive training in risk and compliance topics – Implementing our client relationship officer’s risk scorecard to foster a risk-conscious and compliant culture and reduce operational risks 5.1.3 Three lines of defence model EFG International manages its risks in accordance with a three lines of defence model. The three lines of defence model delineates the key responsibilities for the business, Risk and Compliance functions and internal audit to ensure that the organisation has a coherent and comprehensive approach to risk management. EFG International’s interpretation of the three lines of defence model is in line with industry practice, and the model is operated both centrally and in the business units. This ensures that the material activities and processes are subject to the risk management, oversight and assurance. Risk appetite framework Our risk appetite framework describes the EFG International approach, governance and processes in relation to setting risk appetite and is structured by qualitative considerations (risk appetite statement), as well as quantitative considerations (risk appetite metrics). The risk appetite framework sets the overall approach to risk appetite, documenting the level of risk that EFG International is prepared to incur for the achievement of strategic objectives and in line with our available risk capacity. it includes: – The risk appetite statement – The risk appetite metrics and limit framework – The responsibilities of the bodies overseeing the implementation and monitoring of the risk appetite framework – The risk appetite process, including the escalation of the risk metrics exceeding their predetermined thresholds – The risk appetite and limit cascading process to business units Our risk appetite framework is linked to the risk limit system and is influenced by the overarching risk available capacity, the risk management framework and the strategic business objectives. 5.1.4 Risk capacity The risk capacity is the maximum level of risk EFG International can assume, given its current capabilities and resources, before breaching EFG International’s strategic targets and risk appetite, constraints determined by regulatory capital and liquidity requirements, or otherwise failing to meet the expectations of regulators and law enforcement agencies and our rating ambition. Risk capacity defines an outer boundary within which EFG International must operate. Risk appetite and risk capacity are aligned through the annual budget and planning process. EFG International holds appropriate capital and liquidity buffers to accommodate circumstances where exposures extend beyond EFG International’s risk appetite. This protects EFG International from the financial and/or reputational consequences that might be associated with a breach of its risk capacity or rating ambition. 5.1.5 Risk appetite statement Our risk appetite statement comprises the qualitative component of EFG International’s risk appetite. It comprises a set of statements, each of which describes the level of risk that EFG International is prepared to incur in each risk category to achieve its strategic business objectives. The risk appetite statement is aligned with the business strategy of EFG International. The risk appetite statement is operationalised through the risk appetite metrics and the limit framework. 5.1.6 Risk appetite metrics The quantitative component of risk appetite contains measures (i.e. metrics) that describe the quantum of risk to which EFG International is exposed. The metrics are compared to trigger levels (i.e. thresholds), which can have the nature of limits or warning indicators. The metrics are selected, and thresholds are calibrated in accordance with the risk appetite statement, which in turn reflects the business strategy. Risk metrics can be set at EFG International Board of Directors aggregated level or, if deemed appropriate, at EFG International Executive Committee level. 5.1.7 Limits framework EFG International risk management: EFG International Executive Committee’s delegated committees review risk limits and indicators and the related trigger levels for EFG International at a global and business unit level. The EFG International Executive Committee reviews and recommends the Board global thresholds to the Risk Committee for its review and recommendation for approval by the EFG International Board of Directors. 5.1.8 Cascading process The risk appetite framework, risk appetite statement and risk metrics and their thresholds are defined at EFG International level and are binding for all EFG International business units and local and foreign entities, as set out in the risk management framework. EFG International Executive Committee allocates, according to cascading rules, the limits and risk thresholds to the various local entities. In this way, EFG International appropriately identifies, limits and monitors the risks associated with its local business activities and measures and reports local risk appetite according to consolidated supervision rules. 5.2 Risk categories The risk categories of EFG International are defined in the risk taxonomy included in the risk management framework and are described in the related risk policies and general directives. EFG International’s risk categories establish a common denominator on risks across EFG International and thereby enable alignment across business units, geographies and functions. Strategic and business risk Strategic and business risk is the risk of loss arising from changes in the business environment and from adverse business decisions or improper implementation of decisions. The business and strategic risk includes the following risk categories: – Client portfolio risk: The risk inherent in client portfolios in general as well as the risk of a reduction in assets under management and/or loss of client relationships as a result of other risk types, e.g. performance, reputation, operational risks, compliance, etc. – Strategic risk and governance: The risk of the enterprise or particular business areas making inappropriate strategic choices, or being unable to successfully implement selected strategies or related plans and decisions, which may result in a variance to business plans and strategies – Competitive risk: The risk of an inability to build or maintain sustainable competitive advantage in a given market or markets – Project risk: The risk of damage or loss resulting from an acquisition and/or subsequent post-merger integration or any other large-scale project the institution is undertaking – Human resources risk: The risk arising from inadequate or insufficient human resource performance and/or staffing or key people (including client relationship officers) leaving EFG International The business and strategic risk management strategy approved by the Board of Directors is defined as follows: – Whilst the nature of EFG International business entails a certain level of earnings volatility, this is monitored and controlled to remain consistent with the preservation of the franchise, also under severe stress conditions – EFG International limits earnings volatility by focusing on the core business activities in line with business strategy – EFG International monitors client investment portfolios in order to avoid excessive risk concentrations across portfolios with potential negative implications on clients’ Assets under Management and thereby its own reputation and revenue base – EFG International closely monitors concentrations of clients and Assets under Management across its client relationship officers and will investigate potential actions when these concentrations exceed the defined thresholds, in order to mitigate key person risk – EFG International actively manages the cost base balancing the target of a healthy cost-income ratio with ensuring adequate resourcing and infrastructure – EFG International actively manages the risks arising through the integration of any acquired/merged entity and for potential further mergers and acquisitions Compliance risk Compliance risk is defined as the risk of legal or regulatory sanctions, material financial loss, or loss of reputation which EFG International may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organisation standards, generally accepted practices, and codes of conduct applicable to all its activities. Compliance risk is identified, assessed and measured, monitored, reported and mitigated by the Compliance function and its clearly distinguished and dedicated units, in alignment with the roles and responsibilities defined in EFG International’s risk management framework. The Compliance function reports to the Group Head of Legal & Compliance. Changes in the regulatory environment are monitored, and directives and procedures are adapted as required. In line with these evolving regulations, EFG International continuously invests in personnel and technical resources to maintain adequate compliance coverage. EFG International’s Compliance function is centrally managed from Switzerland, with local compliance officers situated in all the organisation’s booking centre entities around the world. A compliance risk policy is in place, complemented by a comprehensive set of directives and procedures and regular specialised training sessions for all staff to raise their awareness and understanding of the compliance risks. Group Compliance implemented a common platform of tools and processes to ensure the consistent application of compliance guidelines. Compliance risk in EFG International is managed in accordance with the three lines of defence model, outlined in detail in the risk management framework. EFG International aims at mitigating compliance risks that it inherently runs considering the size, structure, nature and complexity of its business and services/product offering. EFG International is committed to sound and effective compliance risk management, as the core foundation for a sustainable financial institution. Effective compliance risk management consists of meeting compliance obligations and protecting EFG International from loss or damage. It improves the way EFG International conducts business for our shareholders and stakeholders and it is vital for long-term and sustainable growth. A major focus of regulators around the world is the fight against money-laundering and terrorism financing. EFG International has in place comprehensive directives on sanctions, anti-money-laundering and know your customer, as well as on anti-bribery and corruption, to detect, prevent and report such risks. Through dedicated monitoring and quality assessment programmes and applications, EFG International Compliance ensures compliance with such directives in every EFG International’s subsidiary and branch. EFG International has defined a set of standards governing the cross-border services it offers and has developed country-specific manuals for the major markets it serves. A mandatory staff training and education programme is in place to ensure adherence to the standards and compliance with the country manuals. They are complemented by a tax compliance framework, the purpose of which is to prevent the unlawful acceptance of untaxed assets. Those frameworks are continuously enhanced to comply with new regulatory updates or developments. Conduct risk refers to risks associated with the firm’s behaviour or activity that could threaten consumer protection or market integrity and might, if risks are not properly apprehended, damage the reputation of EFG International. EFG International has directives on customer and staff conduct in the Group code of conduct, market conduct, cross-border, financial services and conflicts of interest. The EFG International Global Product Committee ensures that all products or securities offered to clients or bought for them meet their best interest and have been gone through the appropriate approval process. Legal risk Legal risk is the risk to the firm’s profitability arising from changes in legislation and/or as results from legal actions against the institution. Any change in the legal environment can constitute a challenge for EFG International in its relations with competent authorities, clients and counterparties in Switzerland and globally. Group Head of Legal & Compliance and Group Head of Litigations ensure that EFG International adequately manages and controls its legal risks. This includes supervising and giving strategic direction to all outside counsels advising EFG International on civil, regulatory and enforcement matters. Group Head of Legal & Compliance is responsible for providing legal advice to EFG International’s management as well as handling client complaints and assisting federal and local authorities in their criminal and administrative investigations. Group Head of Litigations has principal responsibility for overseeing and advising EFG International’s management on significant civil litigation and all government enforcement matters involving EFG International globally. Operational risk Operational risk is defined as the risk of losses resulting from the inadequacy or failure of internal processes, people or systems or from external events. Operational risk is an inherent part of the day-to-day activities and is therefore a risk common to all EFG International's activities. EFG International aims at mitigating operational risks, it may inherently run, to a level it considers appropriate and commensurate with its size, structure, nature and complexity of its service and product offerings, thus adequately protecting its assets and its shareholders’ interests. EFG International’s Board of Directors and senior management strive to set the operational risk culture through, among others, the definition of the overall operational risk tolerance of the organisation (expressed in quantitative thresholds and qualitative statements), which is embedded in the organisation’s risk management practices. The supervision of operational risk at the Board of Directors level is under the responsibility of the Board Risk Committee. EFG International and its local business entities design and implement internal controls and monitoring mechanisms in order to mitigate key operational risks that EFG International inherently runs in conducting its business. While the primary responsibility for managing operational risk lies with EFG International’s business entities and business lines (first line of defence), the development, implementation and oversight of the operational risk policy of EFG International forms part of the objectives of the Operational Risk function of EFG International. It ensures that EFG International has an appropriate operational risk management framework and programme in place for identifying, assessing, mitigating, monitoring and reporting operational risk. EFG International’s Operational Risk function, reporting to the Chief Risk Officer, works in collaboration with the operational risk officers of the local business entities, the regional risk officers within EFG International, as well as certain centralised EFG International functions that also undertake operational risk oversight for their respective area of responsibility. These functions include the Chief Financial Officer, the Chief Operating Officer and the Group Head of Legal & Compliance. Main measures applied by the Operational Risk function for the identification, assessment, monitoring and reporting of operational risk are: – Assessment and monitoring of key operational risks – Monitoring of key risk indicators – Collection, analysis and reporting of operational risk events and losses – Consolidated operational risk reporting – Follow-up of actions taken to remedy key operational risk-related control issues – Establishment of an operational risk awareness programme – Independent Internal control monitoring and oversight EFG International continuously invests in business continuity management, in order to ensure continuity of critical operations in the event of a major disruptive event. Business continuity management encompasses backup operating facilities and IT disaster recovery plans, which are in place throughout EFG International. The management of information security risk, including technology, cybersecurity, data protection and third-party risks is an essential component of operational resilience. As such it is strongly interconnected with the Bank’s business continuity management. The management of cybersecurity and data protection risks is aligned with international standards and applicable regulations. Efforts are sustained to ensure ex ante and ex post controls are fully functional to protect the Bank against evolving and highly sophisticated attacks. EFG International’s focus is on: – Data loss prevention – Access rights, application and infrastructure security (including vulnerability management) – Third-party management and – An appropriate IT governance to prevent and respond to threats EFG International establishes operational risk transfer mechanisms when necessary; in particular, all entities of EFG International are covered by insurance to hedge potential low-frequency-high-impact events. EFG International administers centrally for all its subsidiaries three layers of insurance cover, being comprehensive crime insurance, professional indemnity insurance and director’s and officer’s liability insurance. Other insurances such as general insurances are managed locally. Model risk Model risk is the risk that arises from decisions based on the incorrect selection, implementation or usage of models. The following principles are applied in establishing appropriate governance and supervision: – EFG International has an established definition of a model and maintains a model inventory – EFG International has implemented an effective governance framework, procedures and controls to manage model risks – EFG International has implemented a robust model development and implementation process and ensures appropriate use of models – EFG International undertakes appropriate model validation and independent review activities to ensure sound model performance and greater understanding of model uncertainties EFG International has developed a series of models and methodologies to measure and to quantify the risks of different portfolios and potential risk sensitivities and concentrations. These models are regularly reviewed by the independent Risk Model Validation function, conforming to regulatory requirements, as well as internal general directive on model risk. The Risk Model Validation function reports to the Chief Risk Officer. The validation has the primary objective to test whether models perform as expected, produce results comparable with actual events and values and reflect best-in-practice approaches. The validation also allows checks if models are performing adequately, whether additional examination is required and whether they need to be adjusted or even redeveloped. Results are presented to the relevant governance body and, as required, to regulators. Market risk EFG International is exposed to market risk, which mainly arises from foreign exchange, interest rate and credit spread volatility. EFG International implements different risk management strategies to eliminate or reduce market risk exposures. Risks being hedged through derivative financial instruments are typically changes in interest rates and foreign currency rates. Specific risk management strategies are defined for both the banking and trading book. Banking book The market risk strategy at balance sheet level approved by the Board of Directors is defined as follows: – EFG International manages interest rate risk in line with predefined interest rate limits and risk appetite to generate profits for the benefit of EFG International – EFG International manages foreign exchange risk in order to control its impact on annual results – EFG International generates income primarily through taking liquidity, interest rate and credit spread risk, and only incurs non-material FX risk in the banking book – EFG International limits the extent of concentrations in its investment portfolios Market risks related to the balance sheet structure are managed by the Asset & Liability Management Committee and monitored by the Financial Risk Committee, in accordance with the principles and the risk appetite defined in the market risk policy, which defines the organisational structure, responsibilities, limit systems and maximum acceptable risk set by the Board of Directors. The centralised ALM and Liquidity Risk function, reporting to the Chief Risk Officer, ensures that EFG International has an appropriate market risk management framework in place for identifying, assessing, mitigating, monitoring and reporting risks under its responsibility. Interest rate risk in the banking book refers to the current and prospective risk to the Bank’s capital and earnings arising from adverse movements in interest rates that affect the Bank’s balance sheet positions. EFG International manages the interest rate risk exposure in accordance with risk appetite based on the impact of various interest rate scenarios on both the economic value of equity and the interest income sensitivity. The interest rate risk assessment includes risks deriving from assets, liabilities and off-balance-sheet transactions, considering behavioural assumptions. Interest rate risk qualitative and quantitative information are reported in the Pillar III report for transparency purposes. Foreign exchange risk arises from exposure to changes in the exchange rate of foreign currencies versus the reference currency. EFG International uses value at risk (VaR), sensitivity analysis and stress tests as methodologies to monitor and manage foreign exchange risk both on balance sheet (FX translation risk) and on expected revenues and costs (FX transaction risk). EFG International holds investment portfolios, which allow to diversify balance sheet assets and to optimise any excess liquidity. Investment activities are organised within Treasury department and are under the supervision of the Asset & Liability Management Committee and of the Financial Risk Committee. The centralised Market Risk function monitors on a daily basis the risk exposures of the investment portfolio and reports to the Chief Risk Officer. EFG International investment portfolios carry interest and credit spread exposure on governments, government-related entities, multilateral development banks, banking institutions and, to a lesser extent, to corporate names. To mitigate the credit spread exposure, minimum country and issuer rating standards and concentration limits have been determined. In addition, VaR, interest rate, credit spread sensitivities and stress metrics, as well as P&L limit are computed and monitored at stand-alone portfolio level and on a combined portfolio basis. EFG International is also exposed to market risk in relation to its holding of life insurance policies, related to interest rate risk (refer to Insurance risk section), which has been hedged through derivative financial instruments. Trading book The trading book market risk strategy approved by the Board of Directors is defined as follows: – EFG International trading activities are designed to ensure that we can effectively serve our client’s needs – In addition to execution-only services on behalf of clients, EFG International takes market risks in the form of forex principal trading where beneficial for its clients, principal trading on its own accounts to deliver a return to the Group as well as its structured products business – EFG International has appetite for a small amount of higher-risk activities in the fixed income trading portfolio positions being held in order to facilitate client flows, while trying to benefit from the positive carry EFG International carries out trading operations both for its clients and on its own account with a daily basis monitoring. The trading activities are based in Lugano and organised in different trading desks: forex delta, forex forwards, forex options, precious metals and banknotes and fixed income managed by expert traders. The market risk carried by proprietary trading primarily relates to position risk which derives from the fact that any interest rate, credit, foreign exchange rate fluctuation or equity prices or implied volatilities can cause a change in EFG International’s profits. The centralised Market Risk function monitors on a daily basis the risk exposures of the Trading portfolio and reports to the Chief Risk Officer. All trading positions are valued at market value using market prices, data and parameters published by recognised stock exchanges or financial data providers. On an intra-day or daily basis, the risk measurement systems support the computation and analysis of: (i) the mark-to-market of the positions exposed to risk; (ii) the daily and cumulative monthly and year-to-date P&L; (iii) the various risk metrics (incl. sensitivities – Greeks stress test, VaR, concentration risk) and (iv) the regulatory and economic capital requirements. Daily risk reports are produced which review compliance with nominal and sensitivity limits and stop loss limits. Insurance risk EFG International is exposed to insurance risk in relation to its holding of life insurance policies. The major risk factors are counterparty risk, longevity risk and increase in cost of insurance. Another major risk like the risk of increase in interest rates has been mitigated using interest rate hedging strategies. EFG International assesses those risks using internal models to calculate the fair value of each life insurance policy and through independent estimations done by external service providers as far as the estimation of life expectancies and forecasted premium payments are concerned, in conjunction with management judgements. Moreover, scenario analyses are done to calculate the sensitivity of the life insurance portfolio to increases in life expectancies, in premium payments, in the credit worthiness of the insurance companies and in interest rates. Finally, management judgement is applied to these models and scenarios. Credit risk Credit risk is defined as the risk of loss resulting from the failure of EFG International’s borrowers and other counterparties to fulfil their contractual obligations and that collateral provided does not cover EFG International’s claims. EFG International incurs credit risk from traditional on-balance sheet products (such as loan or issued debt), where the credit exposure is the full value, but also on off-balance-sheet products (such as derivatives), where the credit equivalent exposure covers both actual exposure (as a function of prevailing market prices) and potential exposures (i.e. an add-on for volatility of market price) or other guarantees issued (contingent liabilities). The credit risk arises not only from EFG International’s clients lending operations, but also from its treasury and global market activities. Client credit risk The client credit risk management strategy approved by the Board of Directors is defined as follows: – EFG International targets specific lending activities and incurs credit risk only in areas where we have the required skill set and can make a complete assessment of the risk – EFG International requires an adequate risk return for the credit offerings, and considers the overall relationship with a client or client group, establishing minimum pricing standards at individual credit facilities – EFG International concentrates on the core credit offerings of lombard lending and real estate financing – For lombard lending, the focus is on diversified and liquid collateral portfolios, but EFG International accepts higher concentrated collateral pools and single asset loans in selective cases, if the risk return is justified – For real estate financing, the focus is on residential mortgages, but EFG International is willing to engage in commercial real estate financing and real estate development in select cases and select locations, if the risk return is justified – EFG International is willing to provide lombard lending and real estate financing suited for private banking clients with an established private banking relationship and lodged funds commensurate with the credit that is extended The Executive Credit Committee has the oversight on the credit portfolio, supported by the Credit function, reporting to the Chief Risk Officer, which ensures that EFG International has an appropriate client credit management framework and programme in place. Credit exposures against approved limits and pledged collateral are regularly monitored. Financial collateral is valued where possible on a daily basis, but may be valued more frequently, if particular portfolios and severe market conditions demand. Counterparty and country risks Country risk is defined as the transfer and conversion risk that arises from cross-border transactions. Country risk also encompasses direct and indirect sovereign risk, the default risk of sovereigns or state entities acting as borrowers, guarantors or issuers. The counterparty and country risk management strategy approved by the Board of Directors is defined as follows: – EFG International actively monitors and manages the credit portfolio and consciously takes concentrations in certain sectors, countries and clients/counterparties – EFG International engages and maintains relationships with counterparties that either have an explicit Investment Grade rating or are non-rated but fulfil comparable criteria – EFG International accepts a speculative rating of countries and counterparties within the trading portfolio activities – EFG International targets collateralised transactions when interacting with counterparties – EFG International is willing to take exposures across countries, but focused on its target regions Management of exposure to financial institutions is based on a system of counterparty limits coordinated at the EFG International level, and also subject to pre-approved country limits. The limits are set and monitored by the Country & Counterparty Credit (Sub) Committee. The principal aim of the Counterparty and Country Risk function, reporting to the Chief Risk Officer, is to ensure that EFG International has an appropriate counterparty and country risk management framework in place for identifying, assessing, mitigating, monitoring and reporting risks under its responsibility. EFG International determines the country risk that it wishes to accept via a country classification in primary countries, secondary countries and risk countries. The primary and secondary country categories include countries with which business relationships exist and for which the risk is intended to be accepted, albeit to a differing extent. The risk countries category includes selected countries with a speculative grade, for which risk is nonetheless maintained between tight global limits. Liquidity risk Liquidity risks arise when financing activities are difficult or expensive as a result of liquidity crisis on the markets or reputational issues. They also arise when it is difficult to meet own commitments in a timely manner due to a lack of very liquid assets. Therefore, liquidity risk has a twofold dimension: funding risk and asset liquidity risk. The two liquidity risk types are connected, as asset liquidity risk could directly increase funding risk, if EFG International is not any more able to raise sufficient liquidity in case of need. As defined in the risk appetite framework approved by the Board of Directors, the liquidity risk strategies are defined as follows: – EFG International holds sufficient liquid assets that it could survive a sustained and severe run on its deposit base, without any recourse to mitigating actions beyond liquidating those assets, and without breaching regulatory liquidity limits – EFG International funds the balance sheet primarily from customer deposits, using capital markets opportunistically, without being subject to funding concentration, due to a small number of funding sources or clients EFG International manages liquidity risk in such a way as to ensure that ample liquidity is available to meet commitments to customers, both in demand for loans and repayments of deposits and to satisfy EFG International’s own cash flow needs within all of its business entities. EFG International customer deposit base, capital and liquidity reserves position and conservative gapping policy, when funding customer loans, ensure that EFG International runs only limited liquidity risks. EFG International’s liquidity risk management process is carried out by the Asset & Liability Management Committee and monitored by the Financial Risk Committee, in accordance with the principles and the risk appetite defined in the liquidity risk policy, which defines the organisational structure, responsibilities, limit systems and maximum acceptable risk set by the Board of Directors. Liquidity is handled by the Treasury function, which ensures the ongoing process of sourcing new funds, in the case of a lack of liquidity, or the investing of funds, if there is an excess of liquidity. Main subsidiaries/regions have their own local Treasury departments, regulated by the Group Treasury function. The Treasury function reports to the Head of Global Markets and Treasury. The principal aim of the Assets and Liability Management and Liquidity Risk function, reporting to the Chief Risk Officer, is to ensure that EFG International has an appropriate liquidity risk management framework in place for identifying, assessing, mitigating, monitoring and reporting risks under its responsibility. EFG International aims to avoid concentrations of its funding facilities. It observes its current liquidity situation and determines the pricing of its assets and credit business through the liquidity transfer pricing model. The liquidity risk management process also includes EFG International’s contingency funding plans. EFG International has a liquidity management process in place that includes stress tests, which are undertaken regularly, as part of the reporting requirements established within EFG International risk guidelines. Reputational risk Reputational risk is defined as the risk of an activity performed by an entity of EFG International or its representatives impairing its image in the community or public confidence, and that this will result in the loss of business and/or legal action or potential regulatory sanction. Typically, a result of other risk categories. EFG International considers its reputation to be among its most important assets and is committed to protecting it. Reputational risk for EFG International inherently arises from: – Potential non-compliance with increasingly complex regulatory requirements – Potential non-compliance with anti-money-laundering regulatory requirements – Its dealings with politically exposed persons or other clients with prominent public profiles – Its involvement in transactions executed on behalf of clients other than standard investment products – Potential major incidents in the area of IT security and data confidentiality – Potential misconduct by its employees – Any other potential negative internal or external event arising from other risk categories (e.g. in case of financial risk arising from significant downturn on bonds, equities markets or of a particular housing market speculative bubble, etc.) EFG International manages these potential reputational risks through the establishment and monitoring of the risk appetite set by the Board of Directors, and through established policies and control procedures. Emerging risk EFG International aims to prevent emerging risks; they can be new risks or they can even be familiar risks that become apparent in new or unfamiliar conditions. Their sources can be natural or human, and often are both. Emerging risks arise from environmental, social and governance (ESG) aspects affecting other risk categories, or may include new technologies, for example, artificial intelligence, cyber - and nanotechnology or genetic engineering, as well as economic, regulatory or political change. EFG International monitors, via regular risk assessments, emerging risk that could create potential reputational risks and impact future income generation capacity: – EFG International closely monitors developments in new technologies like artificial intelligence, cyber – and nanotechnology as well as economic, regulatory or political changes – EFG International wants current and potential clients to perceive and share EFG International as a conscious institution on environmental, social and governance aspects Regarding climate risks in particular, EFG International is focusing its attention on the creation and integration of a dedicated climate risks management process in the overall risk management framework. Following FINMA prescriptions and based on the Task Force on Climate-related Financial Disclosures (TCFD), EFG International is embedding climate-related financial risks affecting the known risk categories (credit, market, liquidity, business and operational risks). 6. Credit risk 6.1 Credit risk management (a) Loans and advances A basic feature of the credit approval process is a separa-tion between the firm’s business origination and credit risk management activities. Credit facilities are granted according to delegated credit approval authorities, depending on predefined risk, and on collateral and size parameters. The approval competencies for large exposures and exposures with increased risk profiles are centralised in Switzerland, in compliance with local regulatory and legal requirements of the individual international business units. Mortgages are mainly booked at EFG Bank AG and EFG Private Bank Ltd, London. They are granted predominantly on properties in Switzerland and in prime London locations. EFG International’s internal grading system assigns each client credit exposure to one of ten grading categories. The grading assesses the borrower’s repayment ability and the value, quality, liquidity and diversification of the collateral securing the credit exposure. The credit policy and the nature of the loans ensure that EFG International’s loan book is of high quality. Consequently, an overwhelming majority of EFG International’s credit exposures are graded within the top three categories. (b) Debt securities and other bills For debt securities and other bills, external ratings or their equivalents are used by EFG International for managing the credit risk exposures. 6.2 Credit risk mitigation To qualify as collateral for a lombard loan, a client’s securities portfolio must generally be well diversified with different haircuts applied depending on the asset class and collateral risk profile. Additional haircuts are applied if the loan and the collateral are not in the same currency or diversification criteria are not fully met. Loans guaranteed by real estate are treated in conformity with local regulatory requirements and with the internal directives (regulations, procedures) pertaining to valuation and affordability calculation. All real estate property used as collateral must be evaluated by internal appraisers or by selected external surveyors. External valuations are accepted, as long as the competence and the independence of the external professional have been verified. Credit departments monitor credit exposures against approved limits and pledged collateral. Other specific control and mitigation measures are outlined below. (a) Collateral EFG International employs a range of policies and procedures to mitigate credit risk. EFG International implements guidelines and procedures on the acceptability of specific asset classes as collateral for credit risk mitigation. The main asset classes accepted as collateral for loans and advances are: – Cash and cash equivalent – Financial instruments such as debt securities, equities and funds – Bank guarantees – Mortgages over residential and to a limited extent commercial properties – Assignment of guaranteed cash surrender value of life insurance policies (b) Derivatives EFG International maintains a strict monitoring of credit risk exposure induced by over-the-counter derivative transactions and exchange-traded derivatives against limits granted. Credit risk exposure is computed as the sum of the mark-to-market of the transactions and the potential future exposure calculated through dedicated add-on factors applied to the notional amount of the transactions. EFG International has signed risk-mitigating agreements with its most important financial institutions counterparties. (c) Credit-related commitments Credit-related commitments include the following: – Guarantees and standby letters of credit; these carry the same credit risk as loans – Commitments to extend credit; these represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit EFG International is potentially exposed to loss in an amount equal to the total unused commitments. However, commitments to extend credit are contingent upon customers maintaining specific credit standards. For all of the above, the same standards apply regarding approval competences, collateral requirements and monitoring procedures. 6.3 Credit loss measurement The entity applies the IFRS 9 three-stage approach for impairment measurement: – Stage 1: for financial assets that have not experienced a significant increase in credit risks since initial recognition a 12-months expected credit losses (ECL) is measured – Stage 2: for financial assets that experienced a significant increase in credit risks since initial recognition (but not yet deemed to be credit-impaired) a lifetime ECL is measured – Stage 3: for credit-impaired or defaulted financial assets a lifetime ECL is measured Specific ECL measurements have been developed for each type of credit exposure. 6.4 Due from banks and investment securities This category includes balances with central banks, due from other banks, treasury bills and other eligible bills, and investment securities. Inputs and assumptions The ECL for all products above is estimated using three components: – EAD (exposure at default): book value (amortised cost assets) and purchase value adjusted for amortisation and discount unwind (financial assets at fair value through other comprehensive income). – PD (probability of default): estimated based on external counterparty credit risk rating information (Standard & Poor’s annual global corporate default study and rating transition). For unrated instruments a BBB is considered as a proxy – LGD (loss given default): for stage 1 and stage 2 assets aligned to the credit default swap ISDA market standard (recovery rate 40%). In case of stage 3 assets, determined on an individual basis Estimation techniques Macroeconomic expectations for sovereign securities and central banks debt are incorporated via their respective external rating as part of their assessment of counterparty credit risk. For banks and corporate counterparties, the PD and related transition matrices are impacted based on macroeconomic expectations. Significant increase in credit risk A significant increase in credit risk (SICR) is determined based on rating changes and individually assessed by an internal expert panel considering a range of external market information (e.g. credit default spreads, rating outlook). Definition of default The default is triggered through a payment default on the instrument or any cross-default indication. 6.5 Lombard lending Lombard lending includes loans and advances to customers covered by financial collaterals. Being secured by diversified portfolios of investment securities, the risk of default of the loan is driven by the collateral. Inputs and assumptions The exposure of lombard loans considers potential drawdowns, and the ECL is estimated by means of two components: – ECL due to adverse market price movements that captures the risk that a shortfall arises when collateral values decrease to a level insufficient to cover the respective lombard loan exposure (based on assumptions regarding loan-to-value close-out trigger levels, market price volatility of collateral asset classes, currency mismatch between loan and collateral, close-out periods and LGD considering collateral liquidation sales cost) and – ECL due to a default of a large single collateral position (top 1 to top 5) yielding a shortfall for the lombard loan exposure (based on assumptions regarding risk concentrations per asset sub-class, PD for each sub-asset class based on counterparty risk ratings, LGD to assess the collateral value after default, LTV close-out trigger levels, market price volatility of underlying collateral sub-asset class, currency mismatch between loan and collateral, close-out periods and LGD considering collateral liquidation sales cost) Estimation techniques As opposed to the general measurement approach, the ECL measurement for lombard loans is not based on the PD but on the probability to hit the close-out trigger level and the related expected positive exposure (EPE). The latter corresponds to an uncovered shortfall which in combination with the LGD parameter determines the ECL. No additional macro-conditioning of variables is necessary as macroeconomic effects are captured through parameters such as volatility and loan-to-value (LTV) levels. Post-model adjustments have been recognised on selected individual cases for which risks and uncertainties cannot be adequately reflected with the existing models. Significant increase in credit risk As credit risk is based on the underlying collateral, a SICR is driven by LTV metric. Above the close-out trigger level (maintained despite according to policy could have been closed out, taking a higher credit risk), a lombard loans is classified in stage 2. Definition of default Lombard loans that were closed out or have their collateral liquidated, resulting in an actual shortfall, or where liquidation is still in progress, resulting in a potential shortfall, are considered credit-impaired and classified as stage 3. 6.6 Mortgages and other loans All loans and advances to customers not considered lombard lending are included in this classification. These are residential and commercial mortgages, commercial loans, and overdrafts. Inputs and assumptions The ECL for mortgages and for other loans is estimated using three components: – EAD: the exposure considers contractual repayments, as well as potential drawdown over the lifetime of the loan – PD: derived from historical transition matrices. To derive forward-looking default estimates, these matrices are calibrated to the macroeconomic expectation – LGD: calculated based on the possibility to cure (derived from the transition matrix), considering the current LTV and the future recovery value of underlying properties for mortgages (computed considering house price development and sales costs proxies) Estimation techniques Each loan is assigned to a risk grade on the basis of its credit quality (i.e. rank order estimation). Forward-looking macroeconomic effects are incorporated with forecasts on gross domestic product (GDP) growth and house price development (HPI). Post-model adjustments have been recognised on selected individual cases for which risks and uncertainties cannot be adequately reflected with the existing models. Significant increase in credit risk A SICR is experienced by any exposure greater than 30 days past due, or with a deterioration of other criteria (such as rank order estimation or watchlist status), or previously defaulted (one-year cure). Definition of default Any exposure greater than 90 days past due, or other criteria (such as rank order estimation or watchlist status) or following an individual assessment is considered credit-impaired and classified as stage 3. 6.7 Contractual modifications EFG International modifies the terms of loans provided to customers due to commercial renegotiations, or for distressed loans, with a view of maximising recovery. Such restructuring activities include extended payment term arrangements, payment holidays and payment forgiveness. Restructuring policies and practices are based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. The risk of default of such assets after modification is assessed at the reporting date and compared with the risk under the original terms of initial recognition, when the modification is not substantial and so does not result in derecognition of the original asset. EFG International may determine that the credit risk has significantly reduced after restructuring, so that the assets are removed from stage 3 or stage 2 in accordance with the new terms for the six consecutive months or more. 6.8 Write-off policy EFG International writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include: – Ceasing enforcement activity – Where EFG International’s recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full EFG International may write off financial assets that are still subject to enforcement activity. EFG International still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectations of full recovery. 6.9 Macroeconomic scenario The ECL results are based on forward-looking projections. These projections consider different macroeconomic scenarios, in particular a base, upside and downside scenario is considered. The most significant assumptions affecting the ECL are as follows: – For residential and commercial mortgages: house price index (HPI), given the impact it has on mortgage collateral valuations; gross domestic product (GDP), given the correlation with the customers’ wealth, as well as the commercial clients’ business environment, hence in turn their ability to repay the loans – For due from customers – lombard lending: asset volatility, given the impact it has on financial collateral valuations 2022 2023 2024 2025 2026 World GDP growth Base 4.9% 3.6% 3.4% 3.3% 3.3% Upside 5.9% 4.4% 4.0% 3.7% 3.5% Downside 3.9% 2.8% 2.8% 2.9% 3.1% Switzerland GDP growth Base 3.0% 1.4% 1.8% 1.2% 1.8% Upside 4.0% 2.2% 2.4% 1.6% 2.0% Downside 2.0% 0.6% 1.2% 0.8% 1.6% Weighted GDP growth Base 4.7% 2.0% 1.6% 1.5% 1.5% Upside 5.7% 2.8% 2.2% 1.9% 1.7% Downside 3.7% 1.2% 1.0% 1.1% 1.3% House price index Switzerland Base 1.7% 1.3% 1.0% 2.0% 2.2% Upside 3.7% 2.9% 2.2% 2.8% 2.6% Downside (0.3%) (0.3%) (0.2%) 1.2% 1.8% House price index UK (London) Base 2.3% 1.4% 2.0% 2.7% 7.6% Upside 8.3% 6.2% 5.6% 5.1% 8.8% Downside (3.7%) (3.4%) (1.6%) 0.3% 6.4% 6.10 Sensitivity analysis The table below illustrates the impact on ECL from reasonably possible changes in the main parameters from the actual assumptions used. For mortgages and other loans the upside and downside ECL scenarios have been applied, while for Lombard loans the volatilities have been doubled (downside scenario) and halved (upside scenario). Portfolio Parameter                      Scenario Upside sensitivity CHF millions Downside sensitivity CHF millions Mortgages and other loans GDP growth (0.2) 0.2 Mortgages and other loans House price indices (0.5) 0.7 Lombard loans Volatilities 0.0 0.2 6.11 Collateral and other credit enhancements EFG International employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for credit exposures. EFG International adheres to guidelines on the acceptability of specific classes of collateral for credit risk mitigation. The principal collateral types for loans and advances are: – Charges over financial instruments such as debt securities and equities – Mortgages over residential and to a limited extent commercial properties 6.12 Concentration of risks of financial assets with credit risk exposure EFG International manages the concentration risk by monitoring and reviewing on a regular basis its large exposures. As of 31 December 2021, the carrying value of the exposure of the ten largest borrowers was CHF 1,827.7 million (2020: CHF 1,782.2 million). 7. Credit risk exposure The table below summarises the carrying values, credit grades, expected credit loss (ECL) allowance by stage and fair values of collateral of those financial assets that were measured at amortised cost (or at fair value through other comprehensive income) as of 31 December 2021. The ECL allowance for all assets excluding financial assets at fair value through other comprehensive income are deducted from the carrying value. 31 December 2021 AAA–AA CHF millions A CHF millions BBB–BB CHF millions B–C CHF millions Unrated CHF millions Total carrying value CHF millions Cash and balances with central banks 9,801.5 9,801.5 Treasury bills and other eligible bills 1,452.8 1,452.8 Due from other banks 1,629.0 911.9 21.4 2,562.3 Mortgages 4,621.2 950.4 52.5 166.8 5,790.9 Lombard and other loans 12,005.5 170.9 118.0 140.3 12,434.7 Investment securities 5,300.0 567.4 10.4 5,877.8 Total on-balance sheet assets as at 31 December 2021  34,810.0  2,600.6  202.3  307.1  –  37,920.0 Loan commitments 225.8 225.8 Financial guarantees 248.3 2.0 3.7 2.3 256.3 Total  35,284.1  2,602.6  206.0  309.4  –  38,402.1 * Rating range based on external rating. If not available computed based on final ECL calculation and aligned with external rating agencies default data. 31 December 2021 Total carrying value CHF millions ECL Staging ECL allowance CHF millions Fair value of the collateral held CHF millions Stage 1 Stage 2 Stage 3 Cash and balances with central banks 9,801.5 Treasury bills and other eligible bills 1,452.8 Due from other banks 2,562.3 0.1 0.1 Mortgages 5,790.9 0.7 0.2 4.7 5.6 13,325.2 Lombard and other loans 12,434.7 1.5 1.2 8.6 11.3 38,823.9 Investment securities 5,877.8 0.3 0.3 Total on-balance sheet assets as at 31 December 2021  37,920.0  2.6  1.4  13.3  17.3  52,149.1 Loan commitments 225.8 Financial guarantees 256.3 0.5 0.5 Total  38,402.1  2.6  1.9  13.3  17.8  52,149.1 The table below summarises the carrying values, credit grades, expected credit loss allowance by stage and fair values of collateral of those financial assets that were measured at amortised cost (or at fair value through other comprehensive income) as of 31 December 2020: 31 December 2020 AAA–AA CHF millions A CHF millions BBB–BB CHF millions B–C CHF millions Unrated CHF millions Total carrying value CHF millions Cash and balances with central banks 8,581.9 61.0 8,642.9 Treasury bills and other eligible bills 1,026.9 1,026.9 Due from other banks 1,528.5 1,151.1 417.2 0.2 3,097.0 Mortgages 4,674.8 762.7 116.6 121.1 5,675.2 Lombard and other loans 11,748.4 422.9 150.2 226.3 12,547.8 Financial assets at fair value through other comprehensive income 4,052.1 804.4 88.3 8.2 4,953.0 Total on-balance sheet assets as at 31 December 2020  31,612.6  3,202.1  772.3  355.8  –  35,942.8 Loan commitments 243.4 243.4 Financial guarantees 325.0 0.2 0.9 5.1 331.2 Total  32,181.0  3,202.3  773.2  360.9  –  36,517.4 31 December 2020 Total carrying value CHF millions ECL Staging ECL allowance included in carrying values CHF millions Fair value of the collateral held CHF millions Stage 1 Stage 2 Stage 3 Cash and balances with central banks 8,642.9 Treasury bills and other eligible bills 1,026.9 Due from other banks 3,097.0 0.1 0.1 Mortgages 5,675.2 0.9 0.3 6.0 7.2 14,758.9 Lombard and other loans 12,547.8 2.9 4.0 84.2 91.1 37,157.2 Financial assets at fair value through other comprehensive income 4,953.0 0.3 0.3 Total on-balance sheet assets as at 31 December 2020  35,942.8  4.2  4.3  90.2  98.7  51,916.1 Loan commitments 243.4 Financial guarantees 331.2 0.4 0.2 0.6 Total  36,517.4  4.2  4.7  90.4  99.3  51,916.1 The comparative information has been changed. 8. Credit staging and loss allowances 8.1 Balances with central banks The table below presents the aggregate changes in gross carrying values and loss allowances for Balances with central banks: Balances with central banks - Gross carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020  8,384.4 – – 8,384.4 Financial assets derecognised during the period other than write-offs (214.4) (214.4) New financial assets originated or purchased 534.5 534.5 Exchange differences (61.6) (61.6) Gross carrying value as at 31 December 2020  8,642.9 – – 8,642.9 Financial assets derecognised during the period other than write-offs (75.2) (75.2) New financial assets originated or purchased 1,328.7 1,328.7 Exchange differences (94.9) (94.9) At 31 December 2021 9,801.5 – – 9,801.5 Balances with central banks - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 – – – – Movements with P&L impact – Other movements with no P&L impact – At 31 December 2020 – – – – Movements with P&L impact – Other movements with no P&L impact – At 31 December 2021 – – – – There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. In addition, no amounts were written off in the period. 8.2 Treasury bills and other eligible bills The table below presents the aggregate changes in gross carrying values and loss allowances for Treasury and other eligible bills held at amortised cost: Treasury bills and other eligible bills - Gross carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020  1,375.3 – – 1,375.3 Financial assets derecognised during the period other than write-offs (1,375.3) (1,375.3) New financial assets originated or purchased 1,026.9 1,026.9 At 31 December 2020  1,026.9 – – 1,026.9 Financial assets derecognised during the period other than write-offs (1,026.9) (1,026.9) New financial assets originated or purchased 1,452.8 1,452.8 At 31 December 2021  1,452.8 – – 1,452.8 Treasury bills and other eligible bills - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020  – – – – Movement with P&L impact – Loss allowance as at 31 December 2020  – – – – Movements with P&L impact – At 31 December 2021 – – – – There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. 8.3 Due from other banks The table below presents the aggregate changes in gross carrying values and loss allowances for Due from other banks: Due from other banks - Gross carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 2,622.0 – – 2,622.0 Financial assets derecognised during the period other than write-off (1,397.9) (1,397.9) New financial assets originated or purchased 1,917.2 1,917.2 Exchange differences (44.2) (44.2) At 31 December 2020 3,097.1 – – 3,097.1 Financial assets derecognised during the period other than write-off (2,192.5) (2,192.5) New financial assets originated or purchased 1,762.1 1,762.1 Amounts transferred to Other assets - Held-for-sale (98.1) (98.1) Exchange differences (6.2) (6.2) At 31 December 2021 2,562.4 – – 2,562.4 Due from other banks - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 0.1 – – 0.1 Movements with P&L impact New financial assets originated or purchased – Changes in PD/LGDs/EADs – At 31 December 2020 0.1 – – 0.1 Movements with P&L impact New financial assets originated or purchased – Changes in PD/LGDs/EADs – Total net P&L charge during the period – – – – At 31 December 2021 0.1 – – 0.1 There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. In addition, no amounts were written off in the period. 8.4 Investment Securities The table below presents the aggregate changes in gross carrying values and loss allowances for Financial assets at fair value through other comprehensive income: Investment Securities - Carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 5,395.9 – – 5,395.9 Financial assets derecognised during the period other than write-offs (2,882.1) (2,882.1) New financial assets originated or purchased 2,586.6 2,586.6 Changes in fair value 21.0 21.0 Changes in interest accrual (8.4) (8.4) Exchange differences (160.0) (160.0) At 31 December 2020 4,953.0 – – 4,953.0 Financial assets derecognised during the period other than write-offs (2,368.6) (2,368.6) New financial assets originated or purchased 3,382.5 3,382.5 Change in fair value (111.9) (111.9) Changes in interest accrual (1.0) (1.0) Amounts transferred to Other assets - Held-for-sale (42.7) (42.7) Exchange differences 66.5 66.5 At 31 December 2021 5,877.8 – – 5,877.8 Investment Securities - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 0.5 – – 0.5 New financial assets originated or purchased 0.1 0.1 Changes in PD/LGDs/EADs (0.3) (0.3) At 31 December 2020 0.3 – – 0.3 Movements with P&L impact New financial assets originated or purchased 0.2 0.2 Changes in PD/LGDs/EADs (0.2) (0.2) Total net P&L charge during the period – – – – At 31 December 2021 0.3 – – 0.3 For expected credit losses on Investment securities at fair value through other comprehensive income, the movement with P&L impact is recognised in other comprehensive income, as the ECL has no impact on the fair value of the assets. There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. In addition, no amounts were written off in the period. 8.5 Loans and advances to customers Loans and advances to customers comprise the following: 31 December 2021 CHF millions 31 December 2020 CHF millions (i) Mortgage loans Gross 5,796.5 5,682.4 Loss allowance (5.6) (7.2) (ii) Lombard loans Gross 11,686.9 12,003.2 Loss allowance (4.1) (82.7) (iii) Other loans Gross 759.1 635.7 Loss allowance (7.2) (8.4) Total loans and advances to customers 18,225.6 18,223.0 (i) Mortgage Loans The table below presents the aggregate changes in gross carrying values and loss allowances for Mortgage loans: Mortgage loans - Gross carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020  5,729.1 215.3 144.7 6,089.1 Transfers: Transfer from Stage 1 to Stage 2 (179.6) 179.6 – Transfer from Stage 1 to Stage 3 (41.6) 41.6 – Transfer from Stage 2 to Stage 3 (10.2) 10.2 – Transfer from Stage 2 to Stage 1 65.3 (65.3) – Financial assets derecognised during the period other than write-offs (1,124.4) (55.7) (65.5) (1,245.6) New financial assets originated or purchased 1,462.3 1,462.3 Changes in interest accrual (6.2) (0.1) (0.1) (6.4) Amounts transferred to Other assets - Held-for-sale (431.9) (7.4) (0.5) (439.8) Exchange differences (164.7) (8.6) (3.9) (177.2)       At 31 December 2020  5,308.3 247.6 126.5 5,682.4 Transfers: Transfer from Stage 1 to Stage 3 (86.2) 86.2 – Transfer from Stage 2 to Stage 3 (15.5) 15.5 – Transfer from Stage 3 to Stage 2 13.2 (13.2) – Transfer from Stage 1 to Stage 2 (67.8) 67.8 – Financial assets derecognised during the period other than write-offs (1,316.6) (120.0) (64.8) (1,501.4) New financial assets originated or purchased 1,584.1 1,584.1 Changes in interest accrual (0.9) (0.9) Write-offs (1.8) (1.8) Exchange differences 29.5 2.1 2.5 34.1 At 31 December 2021 5,450.4 195.2 150.9 5,796.5 Mortgage loans - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020  0.7 0.1 6.2 7.0 Movements with P&L impact Transfers: Transfer from Stage 2 to Stage 1 0.1 (0.1) – New financial assets originated or purchased 0.2 0.2 Changes in PD/LGDs/EADs 0.2 0.2 Exchange differences (0.1) 0.1 (0.2) (0.2) Total net P&L charge during the period  0.2 0.2 (0.2) 0.2 Other movements with no P&L impact Transfer from Stage 3 to Stage 2 – At 31 December 2020  0.9 0.3 6.0 7.2 Movements with P&L impact Transfers: Transfer from Stage 2 to Stage 1 0.2 (0.2) – Transfer from Stage 1 to Stage 3 New financial assets originated or purchased 0.3 0.3 Changes in PD/LGDs/EADs (0.4) (0.6) 1.1 0.1 Unwind of discount (0.1) (0.1) Exchange differences (0.2) 0.1 (0.1) Total net P&L charge during the period (0.2) (0.8) 1.2 0.2 Other movements with no P&L impact Transfer from Stage 3 to Stage 2 0.7 (0.7) – Transfer from Stage 2 to Stage 3 – Write-offs (1.8) (1.8) At 31 December 2021 0.7 0.2 4.7 5.6 There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. (ii) Lombard loans The table below presents the aggregate changes in gross carrying values and loss allowances for Lombard loans: Lombard loans - Gross carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 11,848.8 149.9 203.2 12,201.9 Transfers: Transfer from Stage 1 to Stage 2 (165.4) 165.4 – Transfer from Stage 1 to Stage 3 (26.4) 26.4 – Transfer from Stage 2 to Stage 1 18.2 (18.2) – Financial assets derecognised during the period other than write-offs (4,558.1) (155.7) (5.6) (4,719.4) New financial assets originated or purchased 4,990.1 4,990.1 Changes in interest accrual (12.0) 1.4 (10.6) Write-offs (3.7) (0.3) (4.0) Exchange differences (430.0) (6.2) (18.6) (454.8) At 31 December 2020 11,661.5 136.3 205.4 12,003.2 Transfers: Transfer from Stage 1 to Stage 2 (165.7) 165.7 – Transfer from Stage 2 to Stage 1 5.7 (5.7) – Transfer from Stage 3 to Stage 1 3.7 (3.7) – Transfer from Stage 2 to Stage 3 (2.2) 2.2 – Financial assets derecognised during the period other than write-offs (3,907.7) (148.2) (190.9) (4,246.8) New financial assets originated or purchased 4,225.7 4,225.7 Changes in interest accrual (3.8) (3.8) Amounts transferred to Other assets - Held-for-sale (323.1) (4.5) (327.6) Write-offs (8.6) (8.6) Exchange differences 42.2 2.6 44.8 At 31 December 2021 11,538.5 144.0 4.4 11,686.9 Lombard loans - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 0.4 0.8 90.2 91.4 Movements with P&L impact Transfers: Transfer from Stage 2 to Stage 1 0.1 (0.1) – New financial assets originated or purchased 0.1 0.1 Changes in PD/LGDs/EADs (0.4) 2.7 (4.1) (1.8) Exchange differences 0.8 (0.4) (7.4) (7.0) Total net P&L charge during the period 0.6 2.2 (11.5) (8.7) At 31 December 2020 1.0 3.0 78.7 82.7 Movements with P&L impact Transfers: Transfer from Stage 1 to Stage 2 – Transfer from Stage 2 to Stage 1 0.1 (0.1) – Transfer from Stage 3 to Stage 1 1.7 (1.7) – New financial assets originated or purchased – Changes in PD/LGDs/EADs (2.3) (1.8) 6.0 1.9 Loan repaid from Collateral (73.2) (73.2) Unwind of discount (0.4) (0.4) Exchange differences (0.1) 0.1 1.7 1.7 Total net P&L charge during the period (1.0) (1.8) (67.2) (70.0) Other movements with no P&L impact Transfers: Transfer from Stage 2 to Stage 3 (0.1) 0.1 – Write-offs (8.6) (8.6) At 31 December 2021 – 1.1 3.0 4.1 There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. Stage 3 lombard loans Stage 3 lombard loans at end-2020 included a gross exposure including accrued interest of CHF 178.0 million that EFG Bank AG disbursed in 2007 and on which an expected credit loss of CHF 75.3 million had been calculated. As a result of a positive verdict in a case in Singapore concluding that the Group had a valid pledge over assets held as collateral, in November 2021 the Group used the collateral held to repay the loan. This resulted in a reversal of the expected credit loss of CHF 75.6 million as a gain in the P&L. However, the Group has recorded a provision against legal matters of CHF 73.2 million (see Note 49). (iii) Other loans The table below presents the aggregate changes in gross carrying values and loss allowances for Other loans (which include commercial loans, loans to public entities, unsecured overdrafts): Other loans - Gross carrying value Stage 1 Stage 2 Stage 3 Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 708.1 98.1 39.1 845.3 Transfers: Transfer from Stage 1 to Stage 3 (43.1) 43.1 – Transfer from Stage 2 to Stage 3 (10.5) 10.5 – Transfer from Stage 3 to Stage 1 7.6 (7.6) – Transfer from Stage 2 to Stage 1 (32.3) 32.3 – Financial assets derecognised during the period other than write-offs (489.0) (54.9) (17.8) (561.7) New financial assets originated or purchased 379.1 379.1 Write-offs (2.3) (2.3) Other loans transferred to Other assets - Held-for-sale (16.4) (0.3) (16.7) Exchange differences (4.0) (2.0) (2.0) (8.0) At 31 December 2020 510.0 62.7 63.0 635.7 Transfers: Transfer from Stage 1 to Stage 3 (97.1) 97.1 – Transfer from Stage 2 to Stage 3 (0.3) 0.3 – Transfer from Stage 2 to Stage 1 24.5 (24.5) – Transfer from Stage 1 to Stage 2 (69.5) 69.5 – Financial assets derecognised during the period other than write-offs (209.2) (8.9) (39.2) (257.3) New financial assets originated or purchased 381.6 381.6 Amounts transferred to Other assets - Held-for-sale (2.6) (2.6) Exchange differences 0.9 0.3 0.5 1.7 At 31 December 2021 541.2 96.2 121.7 759.1 Other loans - Loss allowance Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total CHF millions CHF millions CHF millions CHF millions At 01 January 2020 1.3 1.5 5.3 8.1 Movements with P&L impact Transfers: Transfer from Stage 1 to Stage 2 – Transfer from Stage 3 to Stage 1 0.1 (0.1) – New financial assets originated or purchased 1.1 1.1 Changes in PD/LGDs/EADs (0.5) (0.1) 2.4 1.8 Exchange differences (0.1) (0.1) Total net P&L charge during the period 0.7 (0.2) 2.3 2.8 Transfer from Stage 2 to Stage 3 (0.1) 0.1 Loss allowance from other loans transferred to Held-for-sale (0.2) (0.2) Write-offs (2.3) (2.3) At 31 December 2020 1.8 1.2 5.4 8.4 Movements with P&L impact Transfers: Transfer from Stage 1 to Stage 2 – Transfer from Stage 1 to Stage 3 – Transfer from Stage 2 to Stage 1 1.2 (1.2) – New financial assets originated or purchased 0.3 0.3 Changes in PD/LGDs/EADs (1.9) 0.1 0.3 (1.5) Exchange differences 0.1 (0.1) – Total net P&L charge during the period (0.3) (1.1) 0.2 (1.2) Other movements with no P&L impact Transfer from Stage 2 to Stage 3 – At 31 December 2021 1.5 0.1 5.6 7.2 There were no purchased credit-impaired balances during the reporting period, nor were the terms of any contracts modified. 9. Market risk 9.1 Market risk measurement methodology (a) Value at risk The Value at risk (VaR) is an indicator used to estimate the maximum potential loss of a position, given predefined confidence interval and time horizon, under normal market conditions following adverse movements of markets parameters (interest rates, credit spreads and foreign currencies). The VaR methodology applied in EFGI is based on a full revaluation historical approach based on 251 daily observations and considering a confidence interval of 99% and a time horizon of 10 days (VaR 10d / 99%). VaR is used for internal control purpose and not for regulatory reporting of risks. (b) Sensitivity analysis The risk assessment through sensitivity analysis considers all major market risks deriving from assets, liabilities and off-balance-sheet transactions. The simulations analyse the impacts on risk exposures of adverse movements in market parameters. For interest rate risk, the following risk exposures are assessed: ï€ Impact on net interest income (NII): the NII assessment determines the impact of a change in the interest rate structure on the forecasted interest income (and thus on current earnings). This view is based on nominal values and considers the impact on the basis of a 12-month time horizon. ï€ Impact on economic value of equity (EVE): the EVE assessment measures the impact of changes in interest rates on current values of future cash flows and thus on the current economic value of EFG International’s equity In contrast to the first approach, which focuses solely on a one-year time frame, the impact on the market value expresses the long-term impact deriving from all future cash flows, if there is a shift in market interest rates. For foreign exchange rate risk, the sensitivity measurement covers in particular: ï€ The mismatch between on- and off-balance-sheet positions denominated in foreign currencies ï€ The forecasted earnings that are originated by positions in foreign currencies (c) Stress tests VaR calculation and sensitivity analysis are complemented by stress tests, which identify the potential impact of extreme market scenarios on EFG International’s equity and income statements. These stress tests simulate both exceptional movements in prices or rates, and drastic deteriorations in market correlations. Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The stress tests include: ï€ Risk factor stress testing, where stress movements are applied to each risk category ï€ Ad hoc stress testing, which includes applying possible stress events to specific positions or regions ï€ Reverse stress test to examine vulnerabilities of the implemented models and risks embedded in EFGI's exposures 9.2 Market risk mitigation EFG International is exposed to financial risks arising from many aspects of its business. EFG International implements different risk management strategies to eliminate or reduce market risk exposures. Risks being hedged through derivative financial instruments are typically changes in interest rates, foreign currency rates or effects of other risks (e.g. mortality risk on insurance policies portfolio). EFG International implements fair value hedging strategies. The risk being hedged in a fair value hedging strategy is a change in the fair value of an asset or liability that is attributable to a particular risk and could affect P&L or the economic value of equity. 9.3 Market risk exposure The following table summarises the repricing gap of EFG International’s financial instruments based on the undiscounted cashflows, categorised by the earlier of contractual repricing or maturity dates (interest rate risk view): Repricing gap by remaining contractual maturities Up to 3 months CHF millions 3–12 months CHF millions 1–5 years CHF millions Over 5 years CHF millions Non-interest bearing CHF millions Total CHF millions As at 31 December 2021 Assets Cash and balances with central banks 9,801.5 9,801.5 Treasury bills 608.3 314.3 529.0 1,451.6 Due from other banks 2,331.0 80.8 150.4 2,562.2 Loans and advances to customers 14,175.2 1,887.7 2,079.3 83.4 18,225.6 Derivative financial instruments 973.6 973.6 Financial assets at fair value through profit and loss 584.5 346.5 113.8 82.3 801.3 1,928.4 Investment securities 1,473.9 940.4 3,162.7 357.5 5,934.5 Total financial assets 29,948.0 3,569.7 6,035.2 523.2 801.3 40,877.4 Liabilities Due to other banks 555.5 0.5 556.0 Due to customers 7,560.9 594.1 89.8 24,272.0 32,516.8 Derivative financial instruments 1,075.8 1,075.8 Financial liabilities at fair value 165.2 1.3 118.5 211.7 496.7 Financial liabilities at amortised cost 3,711.3 226.6 328.7 60.4 4,327.0 Subordinated loans 180.5 180.5 Total financial liabilities 13,068.7 1,003.0 537.0 272.1 24,272.0 39,152.8       On-balance-sheet interest repricing gap 16,879.3 2,566.7 5,498.2 251.1 (23,470.7) 1,724.6 Off-balance-sheet interest repricing gap 1,757.4 54.3 (1,688.3) (135.6) (12.2) The quantitative interest rate risk impact on equity economic value and on net interest income are reported in the Basel III Pillar 3 Disclosures report, together with qualitative information. 9.4 9.5 Value-at-risk trading and investment books The following table presents the VaR (10d / 99%) attribution by interest rates risk, credit spread risk and currency risk: VaR by risk type Total VaR ... thereof Trading book VaR At 31 December CHF millions CHF millions 2021 Credit spread risk 9.9 2.9 Interest rate risk 20.7 0.5 Currency risk 0.4 0.4 VaR 31.0 3.8 2020 Credit spread risk 32.1 12.3 Interest rate risk 7.5 2.9 Currency risk 0.6 0.6 VaR 40.2 15.8 EFG International carries out foreign currency operations both for its clients, and for its own account. The aggregated foreign currency exposure was CHF 26.0 million. Year 2020 was characterised by COVID crisis, where credit spreads increased materially while interest rates reached very low levels due to central banks accomodative policies. 9.6 Interest rate benchmark reform The LIBOR transition was managed by EFG International over the past two years in a dedicated global project. The project has been finalised within regulatory timelines. There is no impact on financial performance and client contracts are fully transitioned to the new alternative reference rate. The global LIBOR project has achieved the following milestones in each entity: ï€ The LIBOR exposure in scope for the transition has been identified ï€ A dedicated communication strategy has informed all impacted clients of the transition ï€ In conformity to the regulatory guidelines, the suitable replacement for the IBOR has been identified ï€ All systems and processes have been enhanced/upgraded ï€ The essential internal training has been provided ï€ The issue of new LIBOR referencing instruments has been stopped as of 31 December 2021 ï€ All legacy contracts have been converted/updated EFG International has adhered to the ISDA or issuer transition protocol for IBOR-based contracts in the interbank market (bonds and interest rates swaps), mitigating any type of risk related to the IBOR discontinuation. 10. Life insurance and longevity risk 10.1 Definitions (a) Demographic experience risk Demographic experience risk is defined as the risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience. Demographic experience risk is limited to EFG International Group’s legacy insurance portfolio (for which we have appropriate valuation models in place for this risk where demographic experience is a key assumption) and for the valuation of the EFG International Group’s retirement benefit obligations. (b) Longevity risk The key risk faced in terms of demographic is longevity risk which is the risk that the underlying insured lives longer than expected. There are three subcomponents of this risk which are: i) Improvement risk, which is the future longevity improvements of collective lives or a singular life are different than expected ii) Diversion from base life table risk, which is relatively low in EFG International Group’s portfolio, as EFG International Group tracks individual lives iii) The per single life risk, which is the random variation from EFG International Group’s estimated likelihood of each insured life dying in each year. In the case of the latter, it is a material risk due to the small number of insured lives in the portfolio (c) Expense risk Expense risk is related primarily to the potential change in premiums. These changes in premium relate to increases payable to the life insurers based on their permissible premium increases under the discrete policy. EFG International Group is required to pay these higher premiums to keep the policy in force, in order to ensure receipt of the cash flow upon maturity. 10.2 Exposure EFG International Group is exposed to longevity estimates in the valuation of the following assets and liabilities: i) Financial assets and liabilities – Financial assets at fair value through profit and loss – Financial liabilities designated at fair value – Derivatives ii) Loans and advances to customers iii) Other liabilities (a) Financial assets and liabilities EFG International Group holds life insurance related assets and liabilities issued by US life insurance companies valued at fair value and the valuations rely on assumptions (see note 32 for further details). Upon the insured individual having deceased, the life insurance company pays a lump sum death benefit to EFG International Group. EFG International Group pays a periodic premium to the life insurance company to keep the policy valid. The key risks of these life insurance related assets and liabilities are due to the uncertainty arising from: i) Longevity risk related to the number of periodic premium payments that are payable by EFG International Group. EFG International Group has to continue paying periodic premiums whilst the insured individual is alive. The longer the insured individual lives, the greater the premium payments will be, usually with no change in the proceeds that will be received from the insurance company ii) Expense risk relates to the risk that the insurance companies increase the periodic premiums. The insurance companies face longevity risk, and risk from having mispriced the cost of insurance. The insurance companies are now attempting to pass the costs of this risk and/or pricing error onto the policy holders, via increased cost of insurance adjustments to the periodic premiums payable (i) Longevity risk The assumptions on life expectancies are based on the Valuation Basic Table (VBT) last published by the Society of Actuaries in 2015 and adjusted by external life settlement underwriters and actuaries to reflect the individual medical characteristics of each referenced insured. Premium estimates are based on cost of insurance estimates, which are provided by independent parties specialised and experienced in the field of premium calculations for life settlement policies. EFG International Group conducts a regular in-depth review of such providers to ensure high-quality standards and reliability of the forecasts. The determination of the best estimate cash flows included in the valuation of the life insurance for the fair value estimate of these assets under IFRS 13 is considered to be a critical accounting judgement by EFG International Group, due to the lack of observable readily available information and the complexity of the determination of these assumptions. The EFG International Group uses management’s best estimate (considering historic information and relying on specialised opinions) and information from external service providers about trends and market developments. Management judgement is applied to this information. (ii) Expense risk Management also considers that the outcome of disputes involving significant increases in premiums observed in the US market will affect the expected premiums payable. The determination of the appropriate level of increase of cost of insurance in the underlying policies is one of the more significant assumptions applied by management in the valuation model. Increases in cost of insurance considers the aging of the insured persons and increases in pricing levels of premiums imposed by certain carriers that issued these policies. The majority of life insurance policies have increasing annual premiums payable. In certain instances, additional increases have been announced by the insurance companies. EFG International Group considers these increases in cost of insurance to be unjustified and have challenged their implementation in US courts. The estimated outcome of disputes involving significant increases in premiums observed in the US market affecting the life insurance policies in the portfolio are taken into account. In these cases, management has, in line with market participants, set their own best estimates taking into account the factors outlined above and the relevant contracts as the ultimate resolution of these legal actions is significant for EFG International Group, it relies on actuaries and management judgement to set the cost of insurance assumptions. Management judgement is applied to this information. (b) Other liabilities - retirement benefit obligations EFG International Group operates retirement benefit plans which under IFRS are classified as defined benefit plans. Three of these plans are in Switzerland for EFG Bank AG and one in the Channel Islands. The three Switzerland plans are considered as defined benefit plans under IFRS due to a minimum guaranteed return in Swiss pension legislation, EFG International Group having no obligation relative to these funds other than to provide the minimum guaranteed return. The plans provide annuity options to individuals on retirement. These annuity options are calculated using a conversion rate which is established by the foundation and reviewed periodically. The valuation of the liability recognised in the balance sheet for the net pension obligation includes actuarial assumptions (see note 52 for further details). One of the key assumptions relates to longevity. Actuarial assumptions are established as unbiased best estimates of future expectations. 10.3 Sensitivities The following table presents the carrying value (and related death benefits) and the impact that a three-month extension in life expectancies will have on the balance sheet valuations: Sensitivity to 3 months extension in life expectancy Carrying value CHF millions Net death benefits CHF millions Life insurance CHF millions Retirement benefit obligations CHF millions 31 December 2021 Assets Derivatives 34.1 66.7 (0.2) Financial assets at fair value through profit and loss 787.8 1,413.6 (28.4) Other assets 72.0 11.7 Liabilities Financial liabilities designated at fair value (163.2) (243.9) 4.1 31 December 2020 Assets Derivatives 49.9 81.2 (0.2) Financial assets at fair value through profit and loss 894.7 1,654.1 (33.9) Liabilities Financial liabilities designated at fair value (175.4) (262.6) 4.5 Other liabilities (118.7) 12.8 11. Liquidity risk EFG International manages liquidity risk in such a way as to ensure that ample liquidity is available to meet commitments to customers, both in demand for loans and repayments of deposits and to satisfy EFG International’s own cash flow needs within all of its business entities. EFG International has a liquidity risk management process in place that includes contingency funding plans, and stress tests that are undertaken to highlight EFG International’s liquidity profile in adverse conditions, analysing also intraday and topical liquidity stress scenarios. 11.1 Liquidity risk mitigation The liquidity risk management process includes: – Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers – Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow – Monitoring balance sheet liquidity ratios against internal and regulatory requirements – Managing the concentration and profile of funding EFG International aims to avoid concentrations of its funding facilities. It observes its current liquidity situation and determines the pricing of its assets and credit business through the liquidity transfer pricing model. The liquidity risk management process also includes EFG International’s contingency funding plans. The contingency measures include, among other actions, the activation of repo transactions with prime counterparties, the liquidation of marketable securities and/or drawdowns on lines of credit (liquidity shortage financing) with the Swiss National Bank. Overall, EFG International, through its business units, enjoys a favourable funding base with stable and diversified customer deposits, which provide the vast majority of EFG International’s total funding. The surplus of stable customer deposits over loans and other funding resources are placed by Treasury units in compliance with the local regulatory requirements and internal guidelines. EFG International manages the liquidity and funding risks on an integrated basis. The liquidity positions of the business units are monitored and managed daily and internal limits are more conservative than the regulatory minimum levels, as required by EFG International’s risk appetite framework and liquidity risk policy. The overall level of liquidity exposure and corresponding limits are tightly monitored by means of specific risk metrics approved by the Board of Directors and in line with EFG International’s overall committed level of risk appetite. Sources of liquidity are regularly assessed in terms of diversification by currency, geography, provider, term and product. 11.2 Liquidity transfer pricing model EFG International’s liquidity transfer pricing model enables the management of the balance sheet structure and the measurement of risk-adjusted profitability, taking into account liquidity risk, maturity transformation and interest rate risk. The liquidity allocation mechanism allows to credit providers of funds for the benefit of liquidity and to charge users of funds. Customers’ loans are charged for the usage of liquidity, based on the liquidity risk embedded in business activities. Short- and long-term loans receive differentiated charges for the cost of liquidity. Liquidity adjustments are introduced for loans that have the same duration, but due to differing liquidity attributes are not of the same value or cost. Customers’ deposits are credited for the benefit of liquidity based on their likelihood of withdrawal. As a general rule, sticky money, such as term deposits, are less likely to be withdrawn and, therefore, receive larger credits than volatile money, such as demand deposits, savings and transaction accounts, which are more likely to be withdrawn at any time. 11.3 Financial liabilities cash flows The following table analyses EFG International’s financial liabilities by remaining contractual maturities, at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows. Although Due to customers are mainly at sight from a contractual point of view, in practice and from an economical perspective, it has been observed that they provide a stable funding source, thereby reducing the exposure to liquidity risk. Financial liabilities by remaining contractual maturities Up to 1 month CHF millions 1–3 months CHF millions 3–12 months CHF millions 1–5 years CHF millions Over 5 years CHF millions Total CHF millions 31 December 2021 Liabilities Due to other banks 536.5 19.0 0.5 556.0 Due to customers 30,447.9 1,385.0 594.1 89.8 32,516.8 Derivative financial instruments 16,596.4 10,803.2 9,397.6 2,110.5 253.0 39,160.7 Financial liabilities at fair value 156.7 8.6 1.3 118.5 211.7 496.8 Other financial liabilities 1,910.7 1,800.6 226.6 328.7 60.4 4,327.0 Subordinated loans 180.5 180.5 Total financial liabilities 49,648.2 14,016.4 10,400.6 2,647.5 525.1 77,237.8 Total off-balance-sheet 30.0 30.2 143.1 167.7 111.0 482.0 Financial liabilities by remaining contractual maturities Up to 1 month CHF millions 1–3 months CHF millions 3–12 months CHF millions 1–5 years CHF millions Over 5 years CHF millions Total CHF millions 31 December 2020 Liabilities Due to other banks 443.6 443.6 Due to customers 28,147.7 1,799.1 809.8 84.9 30,841.5 Derivative financial instruments 14,389.4 11,575.7 6,822.0 2,510.7 316.4 35,614.2 Financial liabilities at fair value 185.1 1.7 4.0 59.9 242.7 493.4 Other financial liabilities 1,642.4 2,113.2 323.0 372.3 79.5 4,530.4 Subordinated loans 352.1 352.1 Total financial liabilities 44,808.2 15,489.7 7,958.8 3,379.9 638.6 72,275.2 Total off-balance-sheet 52.8 102.7 206.3 127.4 932.8 1,422.0 For more detailed information on off-balance-sheet exposures by maturity, refer to note 59. 12. Capital management The Group’s objectives when managing regulatory capital are to comply with the capital requirements set by regulators of the jurisdictions in which the Group entities operate and to safeguard the Group’s ability to continue as a going concern. Capital adequacy Capital adequacy and the use of regulatory capital are continually monitored and reported by the Group’s management, using the framework developed by the Bank for International Settlements (BIS). The regulatory capital requirement of the Group is ultimately determined by the rules implemented by the Swiss banking regulator, the Swiss Financial Market Supervisory Authority (FINMA). The Group reports regulatory capital using Swiss GAAP as a basis. This is also the basis the Group uses to report to the FINMA. The Group will publish the Basel III Pillar 3 Disclosures for the year ended 31 December 2021 on the Group website by 30 April 2022, which will include a summary of regulatory capital under Swiss GAAP based on a set of Swiss GAAP financial statements. The Group’s eligible capital comprises two tiers: – Tier 1 capital: share capital (net of any book values of the treasury shares), non-controlling interests arising on consolidation from interests in permanent shareholders’ equity, retained earnings, additional equity components and reserves created by appropriations of retained earnings. The book value of acquisition-related intangible assets net of acquisition-related liabilities is deducted in arriving at Tier 1 capital. – Tier 2 capital: subordinated loans and unrealised gains arising on the fair valuation of financial instruments at fair value through other comprehensive income. Risk-weighted assets are determined according to specified requirements which reflect the varying levels of risk attached to assets and off-balance-sheet exposures, and include amounts in respect of credit risk, market risk, non-counterparty-related risk, settlement risk, and operational risk. The following table summarises the composition of regulatory capital and the ratios of the Group for the years ended 31 December 2021 and 2020. Basel III – Fully applied Swiss GAAP 31 December 2021 Unaudited CHF millions 31 December 2020 Unaudited CHF millions Tier 1 capital Issued fully paid-up capital, fully eligible 152.0 148.1 Capital reserves 2,032.2 1,875.5 Retained earnings (343.8) (177.2) Minority interests 42.0 43.0 Swiss GAAP: Total shareholders’ equity 1,882.4 1,889.4 Less: Proposed dividend on Ordinary Shares (109.4) (88.8) Less: Goodwill (net of acquisition-related liabilities) and intangibles (20.3) (45.3) Less: Bons de Participation (included in Additional Tier 1) (13.6) (14.5) Less: Other Basel III deductions (123.9) (137.2) Common Equity Tier 1 (CET1) 1,615.2 1,603.6 Additional Tier 1 375.5 14.5 Total qualifying Tier 1 capital 1,990.7 1,618.1 Tier 2 capital Subordinated loan 180.5 351.3 Total regulatory capital 2,171.2 1,969.4 Risk-weighted assets Credit risk including settlement risk and credit value adjustment 7,123.6 6,963.3 Market risk 769.2 977.5 Operational risk 2,025.6 1,978.0 Total risk-weighted assets 9,918.4 9,918.8 31 December 2021 Unaudited 31 December 2020 Unaudited % % Basel III – FINMA CET1 Ratio (after deducting proposed dividend on Ordinary Shares) 16.3 16.2 Basel III – FINMA Total Capital Ratio (after deducting proposed dividend on Ordinary Shares) 21.9 19.9 * Risk-weighted figure calculated by taking 12.5 times the capital adequacy requirement In addition to the existing requirement for the Group to hold eligible capital proportionate to risk-weighted assets, the Group is required to report the leverage ratio. This is a non-risk-based metric, defined as the ratio between ‘total qualifying Tier 1 capital’ and total exposure. Total exposure includes balance sheet and off-balance-sheet exposures. The Basel Committee on Banking Supervision defined the requirements at 3%. Basel III – Fully applied Swiss GAAP 31 December 2021 Unaudited CHF millions 31 December 2020 Unaudited CHF millions On-balance sheet exposure (excluding derivatives and other adjustments) 41,149.4 30,916.7 Derivative exposures (including add-ons) 1,686.5 1,680.8 Securities financing transactions 306.0 1,739.5 Other off-balance sheet exposures 258.9 248.9 Total exposure 43,400.8 34,585.9 Total qualifying Tier 1 capital 1,990.7 1,618.1 Basel III – FINMA Leverage Ratio 4.6% 4.7% In January 2021 the Group issued USD 400.0 million perpetual Additional Tier 1 notes, and repurchased USD 202.1 million Tier 2 Subordinated notes. 13. Net interest income Accounting principles Interest income and expenses are recognised for all interest-bearing instruments on an accrual basis, using the effective interest method. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument, but does not consider future credit losses. The calculation includes all amounts paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and any other premiums or discounts. Negative interest on assets is recorded as an interest expense, and negative interest on liabilities is recorded as interest income. For financial assets at amortised cost or debt instruments at fair value through other comprehensive income classified in Stage 3 for expected credit loss purposes, the original effective interest rate is applied to the amortised cost of the asset rather than to the gross carrying amount. 31 December 2021 CHF millions 31 December 2020 CHF millions Banks and customers 315.9 378.2 Investment securities 69.4 89.5 Treasury bills and other eligible bills 4.1 8.7 Total interest and discount income 389.4 476.4 Banks and customers (93.4) (117.3) Financial liabilities at amortised cost (23.8) (38.5) Lease liabilities (2.6) (1.4) Subordinated loans (10.3) (19.3) Total interest expense (130.1) (176.5) Net interest income 259.3 299.9 Total interest expense on banks and customers includes negative interest on Swiss francs and Euro deposits placed by the Group at the Swiss National Bank and the European Central Bank in the amount of CHF 28.2 million in the year end 31 December 2021 (2020: CHF 25.5 million). 14. Net banking fee and commission income Accounting principle Fees and commissions are recognised on an accrual basis. The Group generates fees and commission income from services provided over time (such as portfolio management and advisory services) or when the Group delivers a specific transaction at a point in time (such as brokerage services). The Group recognises fees earned on transaction-based arrangements at a point in time when the service has been fully provided to the customer. Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the agreement. Except for certain portfolio management and advisory fees, all fees are generated at a fixed price. Portfolio management and advisory fees can be variable depending on the size of the customer portfolio and the Group’s performance as fund manager. Variable fees are recognised when the performance benchmark has been met and when collectability is assured. The Group acts as principal in the majority of contracts with customers. When the Group acts as agent (in certain brokerage, custody and retrocession arrangements), it recognises income net of fees payable to other parties in the arrangement. Fee income generated from providing a service that does not result in the recognition of a financial instrument is presented within banking fees and commission income. Fees generated from the acquisition, issue or disposal of a financial instrument are presented in the income statement in line with the balance sheet classification of that financial instrument. Performance-related fees or fee components are recognised when the performance criteria are fulfilled and the fee can be reliably measured. 31 December 2021 CHF millions 31 December 2020 CHF millions Advisory and management fees 473.6 362.3 Brokerage fees 269.8 253.5 Commission and fee income on other services 343.5 218.8 Banking fee and commission income 1,086.9 834.6 Commission and fee expenses on other services (330.4) (178.9) Banking fee and commission expense (330.4) (178.9) Net banking fee and commission income 756.5 655.7 15. Dividend income 31 December 2021 CHF millions 31 December 2020 CHF millions Financial assets at fair value through profit and loss 1.8 2.1 Dividend income 1.8 2.1 16. Net trading income and foreign exchange gains less losses 31 December 2021 31 December 2020 CHF millions CHF millions Result of currency and precious metal operations 122.3 103.9 Client option premiums 10.9 34.7 Net trading income and foreign exchange gains less losses 133.2 138.6 Result of currency and precious metal operations are primarily earned on a transaction basis. 17. Fair value gains less losses on financial instruments measured at fair value Accounting principles and details of changes in valuation of level 3 assets are set out in note 42. 31 December 2021 CHF millions 31 December 2020 CHF millions Financial instruments measured at fair value Equity securities 3.3 2.9 Life insurance securities 67.4 18.9 Other 9.5 (2.5) Fair value gains less losses on financial instruments measured at fair value 80.2 19.3 18. Gains less losses on disposal of investment securities 31 December 2021 CHF millions 31 December 2020 CHF millions Debt securities (6.3) 6.8 Gains less losses on disposal of investment securities (6.3) 6.8 19. Other operating income 31 December 2021 31 December 2020 CHF millions CHF millions Other profits 36.9 49.0 Other losses (7.0) (40.8) Other operating income 29.9 8.2 Other profits include CHF 5.6 million related to the sale of a business in Switzerland that was completed on 31 March 2021 (see note 41). The sale price of CHF 111.1 million was composed by loans of CHF 422.2 million and deposits of CHF 319.3 million that have been transferred to the buyer, as well as other intangible assets of CHF 2.6 million that have been disposed of. 20. Operating expenses Note 31 December 2021 CHF millions 31 December 2020 CHF millions Staff costs 21 (691.0) (675.0) Professional services (30.7) (34.6) Advertising and marketing (8.9) (8.3) Administrative expenses (79.8) (82.1) Depreciation of property, plant and equipment 36 (13.4) (12.4) Depreciation of right-of-use assets 36 (40.1) (39.7) Amortisation of intangible assets Computer software and licences 37 (17.3) (12.5) Other intangible assets 37 (11.5) (12.4) Legal and litigation expenses (29.1) (34.3) Other (46.1) (40.2) Operating expenses (967.9) (951.5) 21. Staff costs Accounting principles Short-term employee benefits The Group recognises short-term compensated absences and approved bonuses as a liability and an expense. Share-based compensation The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options or restricted stock units is recognised as an expense over the vesting period for options or restricted stock units granted under the plan. Note 31 December 2021 CHF millions 31 December 2020 CHF millions Wages, salaries and staff bonuses (556.7) (543.7) Social security costs (51.8) (50.3) Pension costs Retirement benefits 52 (3.1) (18.2) Other net pension costs (10.3) (9.0) Employee equity incentive plans 63 (26.8) (18.4) Other (42.3) (35.4) Staff costs (691.0) (675.0) As at 31 December2021, the number of full-time equivalent employees (FTEs) of the Group was 3,027 (2020: 3,149) and the average for the year was 3,088 (2020: 3,231). The FTEs not in their notice period at 31 December 2021 was 2,932 (2020: 3,073). 22. Loss allowances expense For accounting principles and basis for calculating expected credit losses, see note 6. Loss allowances expense includes all expected credit losses movements with an income statement impact: 31 December 2021 CHF millions 31 December 2020 CHF millions Change in loss allowance on lombard loans 71.7 1.7 Change in loss allowance on other loans 1.2 (2.9) Change in loss allowance on mortgages (0.3) (0.5) Change in loss allowance on investment securities 0.2 Change in loss allowance on off-balance sheet items 0.1 0.2 Total loss allowances expense 72.7 (1.3) 23. Income tax expense Accounting principles Current tax expense comprises income tax payable on profits, based on the applicable tax law in each jurisdiction, and is recognised as an expense in the period in which profits arise. Deferred income tax is provided, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. The expected effective tax rates are used to determine deferred income tax. The principal temporary differences arise from intangible amortisation, pension obligations, and revaluation of certain financial assets and liabilities. Deferred tax assets are only recognised to the extent that it is probable that they will crystallise in the future. Deferred tax relating to changes in fair values of financial assets classified as ‘Investment securities’, which is taken directly to the ‘Statement of other comprehensive income’, is charged or credited directly to other comprehensive income and for debt instruments is subsequently recognised in the income statement together with the deferred gain or loss on disposal. Accounting judgement The Group is subject to income taxes in various jurisdictions. Estimates are required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Significant estimates are required to determine the current and deferred tax assets and liabilities. A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profits will be available and used against these losses. To the extent that it is not probable that taxable profit will be available against which unused tax losses can be utilised, the deferred tax asset is not recognised. Note 31 December 2021 CHF millions 31 December 2020 CHF millions Current tax expense (23.8) (27.9) Deferred income tax expense 39 (7.7) (2.6) Total income tax expense (31.5) (30.5) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate of the Group, as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions Operating profit before tax 245.4 152.3 Tax at the weighted average applicable rate of 19% (2020: 19%) (46.6) (28.9) Tax effect of: Unrecognised tax losses carried forward for the year (4.9) (8.3) Profit not subject to tax 7.0 5.4 Different tax rates in different countries (0.8) 0.4 Prior year losses recognised 3.7 Utilisation of tax losses carried forward 7.6 Release of prior years tax over-provisions 3.0 Other differences (0.5) 0.9 Total income tax expense  (31.5) (30.5) The weighted average tax rate of 19% (2020: 19%) is based on the operating entities’ local tax rates relative to the taxable income in these jurisdictions. 24. Basic and diluted earnings per ordinary share 31 December 2021 CHF millions 31 December 2020 CHF millions Net profit for the year attributable to equity holders of the Group 205.8 115.3 Dividend on Bons de Participation Estimated distribution on additional equity components (19.1) Net profit for the year attributable to ordinary shareholders 186.7 115.3 Weighted average number of ordinary shares (’000s of shares) 299,231 293,577 Basic earnings per ordinary share (CHF) 0.62 0.39 Diluted-weighted average number of ordinary shares (’000s of shares) 316,296 310,241 Diluted earnings per ordinary share (CHF) 0.59 0.37 Basic earnings per ordinary share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares owned by the Group amounting to 934,391 (2020: 4,222,573). For the purpose of the calculation of earnings per ordinary share, net profit for the period attributable to ordinary shareholders has been adjusted by an estimated accrued distribution of 5.5% p.a. on the additional equity components, and an accrued dividend on the Bons de Participation. The latter accrual has been computed by using a dividend rate from 01 January 2021 until 30 April 2021 of 0.0% and from 01 May 2021 until 30 October 2021 at a rate of 0.321%. The Group issued in 2021 restricted stock units related to 5,878,525 (2020: 6,697,707) shares. Diluted earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding for the dilutive impact of potential unissued shares. These restricted stock units have the effect to increase the diluted-weighted average number of ordinary shares of EFG International in periods when the Group has profits attributable to ordinary shareholder. For information regarding the EFG International equity incentive plan, see note 63. 25. Segmental reporting The Group’s segmental reporting is based on how the Executive Committee reviews the performance of the Group’s operations. The primary split is between the Private Banking and Wealth Management business, the Investment Solutions business, Global Markets & Treasury, and an aggregation of other activity. The Private Banking and Wealth Management business is managed on a regional basis and is split into: – Switzerland & Italy – Continental Europe & Middle East – Americas – United Kingdom – Asia Pacific The expense allocation between segments follows a basis using a combination of directly attributable costs, and allocated costs using appropriate allocation keys (Assets under Management, FTEs, Client Relationship Officers, Revenues or other drivers as applicable). Refer to note 66 for the definition of Assets under Management. Private Banking and Wealth Management Investment & Wealth Solutions Global Markets & Treasury Corporate Eliminations Total CHF millions Switzerland & Italy Continental Europe & Middle East Americas United Kingdom Asia Pacific Total At 31 December 2021 Segment revenue 295.7 208.4 79.5 145.4 178.9 907.9 150.8 114.9 81.0 1,254.6 Segment expenses (238.7) (182.5) (86.3) (127.3) (139.5) (774.3) (87.2) (38.9) (25.3) (925.7) Tangible assets and software depreciation (7.3) (7.8) (2.0) (3.7) (5.2) (26.0) (3.7) (2.9) 2.1 (30.5) Total operating margin 49.7 18.1 (8.8) 14.4 34.2 107.6 59.9 73.1 57.8 298.4 Cost to acquire intangible assets and impairment of intangible assets (0.4) (0.6) (0.3) (1.3) (10.4) (11.7) Provisions (11.1) 0.1 (1.3) (12.3) (0.8) (100.9) (114.0) Loss allowances gains/(losses) (0.1) (0.7) (0.3) 1.2 0.1 0.2 (2.9) 75.4 72.7 Segment profit/(loss) before tax 38.1 16.9 (10.4) 15.6 34.0 94.2 59.1 70.2 21.9 245.4 Income tax expense (5.7) (2.5) 1.6 (2.4) (5.1) (14.1) (8.9) (10.6) 2.1 (31.5) Profit/(loss) for the year 32.4 14.4 (8.8) 13.2 28.9 80.1 50.2 59.6 24.0 213.9 Assets under Management 46,124 37,343 17,057 25,170 33,459 159,153 52,608 21 (39,823) 171,959 Employees (FTEs) * 325 377 143 185 301 1,331 269 85 1,247 2,932 Private Banking and Wealth Management Investment & Wealth Solutions Global Markets & Treasury Corporate Eliminations Total CHF millions Switzerland & Italy Continental Europe & Middle East Americas United Kingdom Asia Total At 31 December 2020 Segment revenue 284.6 182.2 81.7 140.1 161.4 850.0 130.8 162.5 (12.7) 1,130.6 Segment expenses (240.2) (177.1) (77.3) (117.4) (136.4) (748.3) (96.7) (50.5) (18.7) (914.2) Tangible assets and software depreciation (5.2) (5.5) (1.5) (3.7) (3.6) (19.4) (2.4) (3.0) (0.1) (24.9) Total operating margin 39.2 (0.4) 2.9 19.1 21.4 82.2 31.8 109.0 (31.5) – 191.5 Cost to acquire intangible assets and impairment of intangible assets (0.3) (1.7) (0.2) (2.3) (10.1) (12.4) Provisions (10.1) (4.4) (2.1) (1.3) (17.8) (0.8) (6.9) (25.5) Loss allowances gains/(losses) 0.7 (0.5) (0.7) 0.1 (0.4) (0.1) 0.9 (1.7) (1.3) Segment profit/(loss) before tax 29.5 (6.5) 2.5 16.3 20.0 61.8 30.9 109.9 (50.2) 152.4 Income tax expense (4.8) 1.0 (0.4) (2.6) (3.2) (10.0) (5.0) (17.7) 2.1 (30.5) Profit/(loss) for the year 24.7 (5.4) 2.1 13.6 16.8 51.8 25.9 92.2 (48.1) – 121.8 Assets under Management 43,433 35,017 14,913 21,656 31,285 146,304 45,772 2,216 (35,525) 158,767 Employees (FTEs) * 335 423 130 203 286 1,377 281 87 1,328 3,073 Excluding FTEs on notice or in social plan as at year end. Private Banking and Wealth Management Investment & Wealth Solutions Global Markets & Treasury Corporate Eliminations Total CHF millions Switzerland & Italy Continental Europe & Middle East Americas United Kingdom Asia Pacific Total At 31 December 2021 Segment revenue 295.7 208.4 79.5 145.4 178.9 907.9 150.8 114.9 81.0 1,254.6 Segment expenses (238.7) (182.5) (86.3) (127.3) (139.5) (774.3) (87.2) (38.9) (25.3) (925.7) Tangible assets and software depreciation (7.3) (7.8) (2.0) (3.7) (5.2) (26.0) (3.7) (2.9) 2.1 (30.5) Total operating margin 49.7 18.1 (8.8) 14.4 34.2 107.6 59.9 73.1 57.8 298.4 Cost to acquire intangible assets and impairment of intangible assets (0.4) (0.6) (0.3) (1.3) (10.4) (11.7) Provisions (11.1) 0.1 (1.3) (12.3) (0.8) (100.9) (114.0) Loss allowances gains/(losses) (0.1) (0.7) (0.3) 1.2 0.1 0.2 (2.9) 75.4 72.7 Segment profit/(loss) before tax 38.1 16.9 (10.4) 15.6 34.0 94.2 59.1 70.2 21.9 245.4 Income tax expense (5.7) (2.5) 1.6 (2.4) (5.1) (14.1) (8.9) (10.6) 2.1 (31.5) Profit/(loss) for the year 32.4 14.4 (8.8) 13.2 28.9 80.1 50.2 59.6 24.0 213.9 Assets under Management 46,124 37,343 17,057 25,170 33,459 159,153 52,608 21 (39,823) 171,959 Employees (FTEs) * 325 377 143 185 301 1,331 269 85 1,247 2,932 Private Banking and Wealth Management Investment & Wealth Solutions Global Markets & Treasury Corporate Eliminations Total CHF millions Switzerland & Italy Continental Europe & Middle East Americas United Kingdom Asia Total At 31 December 2020 Segment revenue 284.6 182.2 81.7 140.1 161.4 850.0 130.8 162.5 (12.7) 1,130.6 Segment expenses (240.2) (177.1) (77.3) (117.4) (136.4) (748.3) (96.7) (50.5) (18.7) (914.2) Tangible assets and software depreciation (5.2) (5.5) (1.5) (3.7) (3.6) (19.4) (2.4) (3.0) (0.1) (24.9) Total operating margin 39.2 (0.4) 2.9 19.1 21.4 82.2 31.8 109.0 (31.5) – 191.5 Cost to acquire intangible assets and impairment of intangible assets (0.3) (1.7) (0.2) (2.3) (10.1) (12.4) Provisions (10.1) (4.4) (2.1) (1.3) (17.8) (0.8) (6.9) (25.5) Loss allowances gains/(losses) 0.7 (0.5) (0.7) 0.1 (0.4) (0.1) 0.9 (1.7) (1.3) Segment profit/(loss) before tax 29.5 (6.5) 2.5 16.3 20.0 61.8 30.9 109.9 (50.2) 152.4 Income tax expense (4.8) 1.0 (0.4) (2.6) (3.2) (10.0) (5.0) (17.7) 2.1 (30.5) Profit/(loss) for the year 24.7 (5.4) 2.1 13.6 16.8 51.8 25.9 92.2 (48.1) – 121.8 Assets under Management 43,433 35,017 14,913 21,656 31,285 146,304 45,772 2,216 (35,525) 158,767 Employees (FTEs) * 335 423 130 203 286 1,377 281 87 1,328 3,073 26. Analysis of Swiss and foreign income and expenses Swiss CHF millions Foreign CHF millions Total CHF millions Year ended 31 December 2021 Operating income 594.1 660.5 1,254.6 Operating expenses (452.9) (515.0) (967.9) Provisions (17.3) (96.7) (114.0) Loss allowances expense 4.0 68.7 72.7 Profit before tax 127.9 117.5 245.4 Income tax expense (12.0) (19.5) (31.5) Net profit for the year 115.9 98.0 213.9 Net profit for the period attributable to: Net profit attributable to equity holders of the Group 115.9 89.9 205.8 Net profit attributable to non-controlling interests 8.1 8.1  115.9 98.0 213.9 Swiss CHF millions Foreign CHF millions Total CHF millions Year ended 31 December 2020 Operating income 536.2 594.4 1,130.6 Operating expenses (458.4) (493.1) (951.5) Provisions (19.4) (6.1) (25.5) Loss allowances expense (12.9) 11.6 (1.3) Profit before tax 45.5 106.8 152.3 Income tax expense (8.7) (21.8) (30.5) Net profit for the year 36.8 85.0 121.8 Net profit for the period attributable to: Net profit attributable to equity holders of the Group 36.8 78.5 115.3 Net profit attributable to non-controlling interests 6.5 6.5 36.8 85.0 121.8 27. Cash and balances with central banks 31 December 2021 CHF millions 31 December 2020 CHF millions Cash in hand 53.3 65.5 Balances with central banks 9,748.2 8,577.4 Cash and balances with central banks 9,801.5 8,642.9 28. Cash and cash equivalents Accounting principle Cash and cash equivalents include cash in hand, deposits held at call with banks, short-term deposits and other short-term highly liquid investments with original maturities of less than 90 days maturity. 31 December 2021 CHF millions 31 December 2020 CHF millions Cash and balances with central banks 9,801.5 8,642.9 Treasury bills and other eligible bills 601.4 799.7 Due from other banks – at sight 1,184.6 1,489.0 Due from other banks – at term 1,067.0 1,022.1 Cash and cash equivalents with less than 90 days maturity 12,654.5 11,953.7 29. Treasury bills and other eligible bills 31 December 2021 CHF millions 31 December 2020 CHF millions Treasury bills - with maturity of less than 90 days 601.4 799.7 Treasury bills - with maturity of more than 90 days 851.4 227.2 Treasury bills and other eligible bills 1,452.8 1,026.9 Pledged treasury bills with central banks and clearing system companies – – 30. Due from other banks 31 December 2021 CHF millions 31 December 2020 CHF millions At sight 1,184.7 1,489.0 At term – with maturity of less than 90 days 1,067.0 1,022.1 At term – with maturity of more than 90 days 310.7 586.0 Less: Loss allowance (0.1) (0.1) Due from other banks 2,562.3 3,097.0 Pledged due from other banks 282.7 437.6 31. Derivative financial instruments Accounting principle Derivative financial instruments are initially recognised in the balance sheet at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices, including recent market transactions, discounted cash flow models and option pricing models, as appropriate. Certain derivatives embedded in other financial instruments, such as the option in a structured product, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit and loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement, unless the Group chooses to designate the hybrid contracts at fair value through profit and loss. When the Group applies hedge accounting, the Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, at hedge inception and on an ongoing basis (as well as upon a significant change in the circumstances affecting the hedge effectiveness requirements) of whether a hedging relationship meets the hedge effectiveness requirements. The Group will discontinue hedge accounting in the following scenarios: – When the Group determines that a hedging relationship no longer meets the risk management objective – When the hedging instrument expires or is sold or terminated – When there is no longer an economic relationship between the hedge item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship The below summarises the different treatment of derivatives (whether or not hedge accounting is applied): (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item, for which the effective interest method is used, is amortised to the income statement over the period to maturity. (i) Net investment hedge Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in other comprehensive income are included in the income statement when the foreign operation is disposed of. (i) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement. 31.1 Derivatives Credit risk in derivatives is driven by the potential cost to replace the forward or swap contracts if counterparties fail to perform their contractual obligations and that collateral provided does not cover EFG International’s claims. This risk is monitored on a regular basis with reference to the current fair value, a collateral margin applied to a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, EFG International assesses counterparties using the same techniques as for its lending activities. Credit risk on index, interest rate and bond futures and other quoted derivatives is negligible because futures contracts are collateralised by cash or marketable securities, and changes in their value are settled daily. The counterparty credit risk related to derivative with banks, corporates and financial institutions and the counterparty credit risk related to securities lending and borrowing as well as repo activities are mitigated by applying daily collateral exchange and operating under international ISDA/ CSA or GMRA/ GMSLA agreements. The notional amounts of financial instruments provide a basis for comparison, but do not indicate the amount of future cash flows, or the current fair value of the underlying instruments. Accordingly, they do not indicate EFG International’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates, credit spreads or foreign exchange rates, relative to their terms. The fair values of derivative instruments held are set out in the following table: 31 December 2021 31 December 2020 Fair values Assets CHF millions Fair values Liabilities CHF millions Fair values Assets CHF millions Fair values Liabilities CHF millions Derivatives held for trading Currency and precious metal derivatives Forward contracts 24.7 15.5 27.8 27.2 Currency swaps 196.8 222.9 307.4 426.8 OTC currency options 47.7 43.8 82.8 82.8 269.2 282.2 418.0 536.8 Interest rate derivatives Interest rate swaps 12.1 13.8 22.2 29.8 OTC interest rate options 0.3 1.5 1.2 Interest rate futures 6.1 0.1 12.4 19.9 23.7 31.1 Other derivatives Equity options and index futures 610.5 722.8 640.6 706.8 Credit default swaps 12.7 17.1 12.8 19.2 Total return swaps 34.1 49.9 Commodity options and futures 2.2 2.2 6.8 6.8 659.5 742.1 710.1 732.8 Total derivative assets/liabilities held for trading 941.1 1,044.2 1,151.8 1,300.7 Derivatives held for hedging Derivatives designated as fair value hedges Cross currency swap 1.5 0.5 0.6 Interest rate swaps 32.5 30.1 2.0 76.2 Interest rate futures 0.4 1.2 Total derivative assets/liabilities held for hedging 32.5 31.6 2.9 78.0 Total derivative assets/liabilities 973.6 1,075.8 1,154.7 1,378.7 31.2 Hedge accounting Hedge effectiveness The Group applies hedge accounting under IFRS 9 to interest rate risk on fixed rate bonds (fair value hedge). The Group holds a portfolio of long dated fixed rate bonds and therefore is exposed to changes in fair value due to movements in market interest rates. The Group manages the risk exposure by entering into cross currency swaps and interest rate swaps that pay fixed rates matching the coupons of the bonds and receive floating interest rates. Only the interest rate element is hedged and therefore other risks, such as credit risk, are managed but not hedged by the Group. The interest rate risk component is determined as the change in fair value of the long-term fixed rate bond arising solely from changes of the interest rate environment. Such changes are usually the largest component of the overall changes in fair value. This strategy is designated as a fair value hedge and its effectiveness is assessed by comparing changes in the fair value of the bonds attributable to changes in the benchmark rate of interest with changes in the fair value of the interest rate swaps. The Group enters into these transactions on a ‘package basis’, i.e. enters into the swap at the same time as purchasing the bond and structures the swap so that the principal terms of the swap exactly match those of the bond. As a result, the hedging ratio is 100% and there is no ineffectiveness. 31 December 2021 Notional amount of hedging item CHF millions Fair value of assets CHF millions Fair value liabilities CHF millions Balance sheet line item Change in fair value used for hedge ineffectiveness CHF millions Fair value hedge Cross currency swaps 36.8 1.5 Derivatives (2.0) Interest rate swaps 2,650.4 32.5 30.1 Derivatives 65.5 Total hedging item 2,687.2 32.5 31.6 63.5 Carrying amount of hedged assets CHF millions Carrying amount of hedged liabilities CHF millions Fair value adjustments on the hedged item CHF millions Balance sheet line item Change in fair value for hedge ineffectiveness CHF millions Fair value hedge Fixed rate bonds 2,646.3 (32.1) Investment securities (63.5) Total hedged item 2,646.3 – (32.1) (63.5) 31 December 2020 Notional amount of hedging item CHF millions Fair value of assets CHF millions Fair value liabilities CHF millions Balance sheet line item Change in fair value for hedge ineffectiveness CHF millions Fair value hedge Cross currency swaps 45.2 0.4 0.6 Derivatives 4.6 Interest rate swaps 2,360.2 2.0 76.2 Derivatives (31.5) Total hedging item 2,405.4 2.4 76.8 (26.9) Carrying amount of hedged assets CHF millions Carrying amount of hedged liabilities CHF millions Fair value adjustments on the hedged item CHF millions Balance sheet line item Change in fair value for hedge ineffectiveness CHF millions Fair value hedge Fixed rate bonds 2,478.8 49.4 Investment securities 26.9 Total hedged item 2,478.8 – 49.4 26.9 31.3 Net investment hedges The Group has designated an intra-Group loan of GBP 66.6 million made to EFG Private Bank Ltd, London as a net investment hedge for the equity in banking subsidiaries. The gains and losses from revaluation of this loan is taken through other comprehensive income and is determined as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions Change in net investment hedges denominated in GBP 1.9 (4.9) Change in net investment hedge valuation 1.9 (4.9) 32. Financial assets at fair value through profit and loss Accounting judgement Unquoted life insurance policies are measured at fair value, following the guidance of IFRS 13. The market for life insurance policies is illiquid and in the absence of market observable valuations for portfolios of similar characteristics, EFG International Group had to exercise judgement in determining the fair value of these assets. The Group has adopted an Income Approach for determining the fair value. The Income Approach risk adjusts future cash flows and then discounts these using a risk-free rate. The key risk adjustments made in the fair value measurement include longevity risk (including the risk of statistical volatility) and risk of change in cost of insurance. The valuation is highly sensitive to longevity risk and risk of change in cost of insurance (premium increase risk), and as a result the Group discloses sensitivities to these. Management judgement is applied to the estimation of future premium streams and cost of insurance, and the outcome of disputes with insurers involving significant increases in premiums. 31 December 2021 CHF millions 31 December 2020 CHF millions Issued by non-public issuers: Banks 134.8 322.7 Issued by non-public issuers: Other 884.7 914.8 Issued by other issuers: US life insurance companies 787.8 894.7 Total 1,807.3 2,132.2 The movement in the account is as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions At 01 January 2,132.3 2,399.7 Additions 424.7 625.4 Disposals (sale and maturity) (692.1) (696.1) Transfer to other assets - (97.6) Net (losses)/gains from changes in fair value (78.6) (1.1) Exchange differences 21.0 (98.1) At 31 December 1,807.3 2,132.2 Pledged assets The Group has pledged financial investment securities as collateral for CHF 53.5 million (2020: CHF 43.7 million) related to the Group’s role as collateral provider in relation to structured products issued by a subsidiary. The Group has pledged financial investment securities issued by US life insurance companies as collateral for CHF 146.7 million (2020: CHF 149.4 million) related to the Group’s financial liabilities at fair value. See note 47. Life insurance related assets The Group holds the following life insurance related financial assets and liabilities as at 31 December 2021: Classification 31 December 2021 Number of insureds 31 December 2021 Average Age Years 31 December 2021 Average Life Expectancy Years 31 December 2021 Net death benefits CHF millions 31 December 2021 Fair value CHF millions Financial asset at fair value through profit and loss Physical policies 227 91.9 4.1 1,413.6 787.8 Derivative financial instruments Synthetic policies 65 90.5 4.8 66.7 34.1 Financial liabilities designated at fair value Synthetic policies (54) (89.4) (5.0) (243.9) (163.2) Total 238 1,236.4 658.7 Classification 31 December 2020 Number of insureds 31 December 2020 Average Age Years 31 December 2020 Average Life Expectancy Years 31 December 2020 Net death benefits CHF millions 31 December 2020 Fair value CHF millions Financial asset at fair value through profit and loss Physical policies 270 91.3 4.4 1,654.1 894.7 Derivative financial instruments Synthetic policies 82 90.5 3.2 81.2 49.9 Financial liabilities designated at fair value Synthetic policies (65) (89.1) (5.1) (262.6) (175.4) Total 287 1,472.7 769.2 These life insurance policies are issued by US life insurance companies. The Group pays a periodic premium to the life insurance company to keep the policy in good standing and, upon the insured individual (US based) having deceased, the life insurance company pays a lump sum death benefit to the Group. Should the Group not pay the necessary periodic premium, the insurance policy would lapse, and this would imply a full write-down of the life insurance policy. The key risks that the Group is exposed to (and which impact the fair value) include the following: – Longevity (see note 10) – Changes in the premium streams (cost of insurance) – Counterparty credit risk – Interest rate risk The Group values these financial assets and liabilities at fair value using models. As the market for life settlement policies is private and fragmented, the models rely on inputs to the models that are not based on observable market data (unobservable inputs) and assumptions are made in determining relevant risk adjustments. These financial instruments are classified as level 3. The fair value is calculated using cash flows market participants would expect, based on management judgement that is based on information provided by independent parties specialised in calculating future cost of insurance charges for life insurance policies and adjusted to account for uncertainties. The determination of the fair value for this portfolio is a critical process and therefore the Group reviews these estimates on a periodic basis and relies on expert actuaries and legal advisors in order to minimise risks surrounding the assumptions related to the life expectancy and cost of insurance estimates. The determination of the fair value of these financial assets and liabilities requires management judgement on the below valuation inputs: (a) Longevity assumptions The assumptions on life expectancy are based on the Valuation Basic Table (VBT) last published by the Society of Actuaries in 2015 and adjusted by external life settlement underwriters and actuaries to reflect the individual medical characteristics of the referenced insureds. Premium estimates are based on cost of insurance estimates, which are provided by independent parties specialised and experienced in the field of premium calculations for life settlement policies. The Group conducts a regular in-depth review of such providers to ensure high-quality standards and reliability of the forecasts. (b) Premium streams and cost of insurance The determination of the best estimate cash flows included in the valuation of the life insurance for the fair value estimate of these assets under IFRS 13 is considered to be a critical accounting judgement for the Group, due to the lack of observable readily available information and the complexity of the determination of these assumptions. The Group uses management’s best estimate (considering historic information and relying on specialised opinions) and information from external service providers about trends and market developments. Management also considers that the outcome of disputes involving significant increases in premiums observed in the US market will affect the expected premiums payable. The determination of the appropriate level of increase of cost of insurance in the underlying policies is one of the most important assumptions applied by management in the valuation model. Increases in cost of insurance considers the aging of the insured persons and increases in pricing levels of premiums imposed by certain carriers that issued these policies. The majority of life insurance policies have increasing annual premiums payable. In certain instances, additional increases have been announced by the insurance companies. The Group considers these increases in cost of insurance to be unjustified and have challenged their implementation in US courts. The outcome of disputes involving significant increases in cost of insurance observed in the US market affecting the life insurance policies in the portfolio are taken into account. In these cases, management has, in line with market participants, set their own best estimates taking into account the factors outlined above and the relevant contracts. As the ultimate resolution of these legal actions is significant for the Group, it relies on actuaries to set the cost of insurance assumptions. The Group will also take legal actions against other carriers that have indicated that they will increase premiums. The Group believes that it will prevail in these claims, however legal proceedings are inherently unpredictable and the actual future outcome might materially differ from the Group’s expectations. (c) Counterparty credit risk This is the risk of default of the insurance carrier. Credit risk is taken into account through applying a notching-based probability of default approach that takes the credit rating assigned by a recognised agency into consideration as starting point. The Group is of the view that US life insurance carriers are operating in a highly regulated environment, which would ensure that the rights of the beneficiary under a life insurance policy remain protected and claims under such policies rank among the most senior liabilities. (d) Interest rate risk The risk-adjusted cash flows have been discounted at the term matching linearly interpolated US Treasury curve. Sensitivities The sensitivity to the fair value of the Group’s life insurance related assets and liabilities held at fair value are included below: Discount Factor Longevity Premium Estimates –1% +1% –3 months +3 months –5% +5% CHF millions CHF millions CHF millions CHF millions CHF millions CHF millions Life settlement sensitivities Financial assets at fair value Physical policies 46.7 (42.4) 29.1 (28.4) 25.4 (25.4) Derivative financial instruments Synthetic policies 1.6 (1.4) 0.1 (0.2) Financial liabilities designated at fair value Synthetic policies (8.3) 7.6 (4.1) 4.1   Profit and loss sensitivity  40.0 (36.2)  25.1 (24.5)  25.4 (25.4) The assumptions related to premiums and cost of insurance take the market participants’ view on the merits of the ongoing legal cases of the Group and other plaintiffs into account. The development and ultimate resolution of these proceedings have an impact on the Group’s fair value assumptions by CHF 54.7 million (2020: CHF 102.5 million). The impact of counterparty credit risk for a two-notch downgrade would be CHF 3.8 million (2020: CHF 5.2 million) decrease in fair value. 33. Investment securities Accounting principles are set out in note 42. 31 December 2021 CHF millions 31 December 2020 CHF millions Debt securities Held to collect 45.2 Debt securities Fair value through other comprehensive income 5,832.0 4,947.3 Equity instruments Fair value through other comprehensive income 0.6 5.7 At 31 December 5,877.8 4,953.0 The following table presents the split by issuer and respective loss allowances (ECL): 31 December 2021 31 December 2020 Carrying amount Loss allowance Carrying amount Loss allowance CHF millions CHF millions CHF millions CHF millions Government 3,254.3 0.2 2,275.1 0.2 Banks 2,365.1 0.1 2,183.6 0.1 Other issuers 257.8 488.6 Equity instruments 0.6 5.7 Total 5,877.8 0.3 4,953.0 0.3 The equity instruments represent a holding in an entity currently in liquidation. The Group has received no dividend income on this position. 34. Loans and advances to customers Accounting principles are set out in note 42. Note 31 December 2021 CHF millions 31 December 2020 CHF millions Mortgages 5,796.5 5,682.4 Lombard loans 11,686.9 12,003.2 Other loans 759.1 635.7 Gross loans and advances 18,242.5 18,321.3 Less: Loss allowance 35 (16.9) (98.3) Loans and advances to customers 18,225.6 18,223.0 The other loans include CHF 185.1 million (2020: CHF 34.3 million) of loans made with no collateral and CHF 119.6 million (2020: CHF 130.2 million) of loans where the collateral value is below the value of the loan. The uncollateralised portion of these loans is classified as ‘unsecured’; however, they are within the approved unsecured lending limits for the customers. 35. Loss allowances on loans and advances to customers Accounting judgement The measurement of the expected credit loss allowance for financial assets measured at amortised cost and fair value through other comprehensive income is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring the expected credit losses are further detailed in note 6, which also sets out the key sensitivities of the expected credit losses to changes in these elements. A number of significant judgements are also required in applying the accounting requirements for measuring the expected credit losses, such as: – Determining the criteria for significant increase in credit risk – Choosing appropriate models and assumptions for the measurement of expected credit losses – Establishing the number and relative weightings of forward-looking scenarios for each type of product and the associated expected credit losses – Establishing groups of similar financial assets for the purposes of measuring the expected credit losses As described in note 8.5 (ii), the Group had a gross exposure, which including accrued interest that amounted to CHF 178.0 million at end 2020 for a lombard loan extended to an affiliate of a Taiwanese insurance company. This loan was determined to be credit-impaired. Due to the uncertainty relating to the outcome of the litigations, the Group exercised judgement in determining the loss allowances for this loan. The Group has estimated the expected credit loss based on probability-weighted expected values of multiple outcomes. The expected credit loss related to this loan totalled CHF 75.3 million in 2020. In 2021 this loan was derecognised when the collateral was used to repay the loan. Note 2021 CHF millions 2020 CHF millions At 01 January (98.3) (106.5) Loss allowance released / (increased) through profit and loss 72.6 (1.7) Utilisation of provision 10.4 2.3 Loss allowance transferred to Other assets - Held-for-sale 0.2 Exchange differences (1.6) 7.4 At 31 December  (16.9) (98.3) 36. Property, plant and equipment Accounting principles Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated using the straight-line method to write down the cost of property, plant and equipment, to their residual values over their estimated useful life as follows: – Buildings own use: 50 years – Buildings and leasehold improvements: 5–20 years – Computer hardware: 3–10 years – Furniture, equipment and motor vehicles: 3–10 years – Artwork: no depreciation, tested for impairment – Right-of-use assets: over the non-cancellable period for which the Group has the right to use an asset, including optional periods when the Group is reasonably certain to exercise an option to extend (or not to terminate) a lease Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating expenses in the income statement. The Group primarily leases office premises, as well as some IT equipment. Rental contracts vary from fixed periods of six months to 15 years. The Group recognises lease liabilities in relation to leases. These liabilities are measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of entering the lease. The remeasurements to the lease liabilities are recognised as adjustments to the related right-of-use assets immediately after the date of initial application. Right-of-use assets are measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet. Note Land and Buildings CHF millions Other tangible assets CHF millions Right-of-use assets CHF millions Total CHF millions Year ended 31 December 2020 Opening net book amount 89.8 51.5 140.8 282.1 Additions 0.7 12.7 13.4 New leases and modification of leases 110.1 110.1 Disposal, write-offs and lease modifications (13.3) (1.4) (14.7) Depreciation charge for the year 20 (1.5) (10.9) (39.7) (52.1) Exchange differences (0.5) (3.1) (3.6) At 31 December 2020 75.7 51.4 208.1 335.2 Year ended 31 December 2021 Opening net book amount 75.7 51.4 208.1 335.2 Additions 7.9 7.9 New leases and modification of leases 61.3 61.3 Disposal and write-offs (1.6) (1.6) Depreciation charge for the year 20 (2.2) (11.2) (40.1) (53.5) Reclassification to other assets held for sale (2.0) (8.7) (10.7) Exchange differences 0.2 (0.1) (4.1) (4.0) At 31 December 2021 73.7 46.0 214.9 334.6 Other tangible assets include leasehold improvements, furniture, equipment, motor vehicles and computer hardware. The right-of-use assets are composed of office premises for CHF 214.8 million (2020: CHF 207.9 million). 37. Intangible assets Accounting principles The intangible assets include the following categories: (i) Goodwill Goodwill represents the excess of the consideration over the fair value of the Group’s share of the net identifiable assets of the acquired undertaking at the date of acquisition. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. (i) Other intangible assets – Brand name Amortisation is calculated on the basis of a 15-year useful life. The remaining life is reviewed periodically for reasonableness. (i) Other intangible assets – Client relationships Amortisation is calculated on the basis of a 13- to 14-year useful life. The remaining life is reviewed periodically for reasonableness. (i) Other intangible assets – Computer software Amortisation is calculated using the straight-line method over a 3- to 10- year basis. The acquisition cost of software capitalised is on the basis of the cost to acquire and bring into use the specific software. Note Computer software and licences CHF millions Customer relationships and other intangible assets CHF millions Goodwill CHF millions Total intangible assets CHF millions Year ended 31 December 2020 Opening net book amount 56.3 132.1 70.5 258.9 Addition/decrease in scope of consolidation due to acquisition/disposal of business 1.0 1.0 Acquisitions/disposals of intangible assets 26.0 2.9 28.9 Amortisation of intangible assets 20 (12.5) (12.4) (24.9) Reclassification between categories (2.6) (2.6) Exchange differences and other movements 2.0 (2.1) (0.8) (0.9) Closing net book value  71.8 118.9 69.7 260.4 Year ended 31 December 2021 Opening net book amount 71.8 118.9 69.7 260.4 Acquisitions/disposals of intangible assets 37.4 (1.3) 36.1 Amortisation of intangible assets 20 (17.3) (11.5) (28.8) Reclassification to other assets held for sale (8.1) (8.9) (19.2) (36.2) Exchange differences and other movements 0.1 (0.6) (1.7) (2.2) Closing net book value  83.9 96.6 48.8 229.3 Customer relationships and other intangible assets mainly include client relationships intangible assets for CHF 87.1 million (2020: CHF 106.9 million), brand names intangibles for CHF 4.9 million (2020: CHF 5.5 million) and other intangible assets for CHF 4.6 million (2020: CHF 6.5 million). Other intangible assets are mainly related to rights to lease. 38. Intangible assets – impairment tests Accounting judgement EFG International Group tests at least annually whether goodwill has suffered impairment in accordance with the accounting policy. The recoverable amounts of cash-generating units are the higher of the assets’ value in use and fair value less costs of disposal which is determined on the basis of the best information available on the amount that could be obtained from the disposal of the assets in an arm’s-length transaction, after deduction of the costs of disposal. The value in use is determined by using a discounted cash flow calculation based on the estimated future operating cash flows of the asset. An impairment is recorded when the carrying amount exceeds the recoverable amount. The Group’s goodwill is reviewed for impairment by comparing the recoverable amount of each cash-generating unit (CGU) to which goodwill has been allocated. Where the carrying values have been compared to recover-able amounts using the ‘Value in use’ approach, the risk-adjusted discount rates used are based on observable market long-term government bond yields (15 years) for the relevant currencies plus a risk premium of 4.4% to 10.5% (2020: 7.0% to 10.2%). The risk premiums were determined using capital asset pricing models and are based on capital market data as of the date of impairment test. A period of five years is used for cash flow projections, with a discounted terminal value added. The terminal value is into perpetuity using the year 5 cashflows and discount and growth rates as detailed in the following table. The BSI Group client relationship intangible assets impairment test does not use a perpetuity at the end of the 5-year period, but rather a residual 3.8-year period (total period of 8.8 years) in line with the remaining amortisation period. Where the carrying values have been compared to ‘Fair value less costs to sell’, the fair value has been calculated using a price earnings (PE) approach based on similar transactions for comparable listed companies. The revenue basis for the PE approach was based on expected future revenues. The carrying amounts of goodwill and intangible assets at 31 December 2021 allocated to each cash-generating unit are as follows: 31 December 2021 Segment Cash-generating unit Discount rate/ Growth rate Period Intangible assets CHF millions Goodwill CHF millions Total CHF millions Value in use Asia Shaw and Partners 6.4%/2.0% 5 years 23.7 26.8 50.5 BSI Group Various 8.7%/–8.8% 8.8 years 66.8 66.8 Fair value less costs to sell P/E Continental Europe Monaco 8.2× 20.0 20.0 Other Various Other CGUs 6.1 2.0 8.1 Total carrying values 96.6 48.8 145.4 31 December 2020 Segment Cash-generating unit Discount rate/ Growth rate Period Intangible assets CHF millions Goodwill CHF millions Total CHF millions Value in use Continental Europe Spain 10.2%/1.5% 5 years 9.4 19.2 28.6 Asia Shaw and Partners 7.0%/2.0% 5 years 26.6 27.5 54.1 BSI Group Various 9.6%/–8.8% 9.8 years 74.2 74.2 Fair value less costs to sell P/E Continental Europe Monaco 8.6× 0.5 20.9 21.4 Other Various Other CGUs 8.2 2.1 10.3 Total carrying values 118.9 69.7 188.6 The Group considers that a reasonably possible change in a key assumption will not result in an impairment of goodwill of any of the cash-generating units. 39. Deferred income tax assets and liabilities Accounting policies are set out in note 23. Deferred income taxes are calculated under the liability method on all temporary differences, using the expected effective local applicable rate. Deferred income tax assets and liabilities comprise the following: 31 December 2021 CHF millions 31 December 2020 CHF millions Deferred income tax assets 61.9 96.5 Deferred income tax liabilities (19.9) (23.0) Net deferred income tax 42.0 73.5 The movement on the net deferred income tax account is as follows: At 01 January 73.5 68.1 Deferred income tax gain for the period in the income statement (note 23) (7.7) (2.6) Decrease from finalisation of acquisition accounting (0.6) Deferred tax asset disposed with subsidiaries (2.6) Change in retirement benefit obligations (23.2) 11.4 Exchange differences (0.6) (0.2) At 31 December 42.0 73.5 Deferred income tax assets and liabilities are attributable to the following items: 31 December 2021 CHF millions 31 December 2020 CHF millions Deferred tax assets Tax losses carried forward 81.4 88.0 Retirement benefit obligation not applicable for local tax 23.3 Other differences between local tax rules and accounting standards 3.4 3.2 Effect of deferred tax netting (22.9) (18.0) Deferred income tax assets 61.9 96.5 Deferred tax liabilities Arising from acquisition of intangible assets (19.8) (22.6) Valuation of financial assets not reflected in local tax accounts (19.0) (18.0) Pension asset not applicable for local tax (3.9) Sundry differences between local tax rules and accounting standards (0.1) (0.4) Effect of deferred tax netting 22.9 18.0 Deferred income tax liabilities (19.9) (23.0)  Net deferred income tax 42.0 73.5 Certain entities within the Group have recognised deferred income tax assets, despite having incurred losses in 2020 or 2021, on the basis that such losses are considered to be temporary in nature. The relevant entities have already returned to profitability or are expected to do so in the near future. The deferred income tax gain in the income statement comprises the following temporary differences: 31 December 2021 CHF millions 31 December 2020 CHF millions Utilisation of tax losses carried forward (20.4) (14.5) Creation of deferred tax assets on tax losses carried forwards 14.6 18.3 Deferred tax liabilities related to intangible assets 2.9 2.3 Other temporary differences (4.8) (8.7) Deferred income tax expense (note 23) (7.7) (2.6) The Group has deferred tax assets related to tax losses carried forward of CHF 81.4 million (2020: CHF 88.0 million) as a result of Group companies with tax losses of CHF 393.9 million (2020: CHF 429.7 million) to carry forward against future taxable income. These tax losses will expire as summarised below: 31 December 2021 CHF millions Tax rate Carried forward losses CHF millions Expiry in 1–3 years CHF millions Expiry in 4–7 years CHF millions Expiry after 7 years CHF millions EFG Bank AG, Switzerland 63.3 19.7% 321.5 321.5 EFG Bank (Luxembourg) S.A., Luxembourg 17.6 25.0% 70.5 70.5 EFG Bank (Luxembourg) S.A., Portugal Branch 0.5 27.7% 1.9 1.9 Total 81.4 393.9 321.5 – 72.4 31 December 2020 CHF millions Tax rate Carried forward losses CHF millions Expiry in 1–3 years CHF millions Expiry in 4–7 years CHF millions Expiry after 7 years CHF millions EFG Bank AG, Switzerland 70.5 19.7% 358.5 358.5 EFG Bank (Luxembourg) S.A., Luxembourg 16.8 25.0% 67.2 67.2 EFG Bank AG, Singapore Branch 0.7 17.0% 4.0 4.0 Total 88.0 429.7 – 358.5 71.2 The Group has unused tax losses for which no deferred tax asset is recognised as follows: 31 December 2021 CHF millions Expiry in 1–3 years CHF millions Expiry in 4–7 years CHF millions Expiry after 7 years CHF millions EFG International AG, Switzerland 122.2 122.2 EFG Bank (Luxembourg) SA, Luxembourg * 108.7 108.7 EFG Bank AG, Switzerland 82.6 82.6 EFG Bank (Luxembourg) SA, Milano branch 56.5 56.5 EFG Bank AG, Hong Kong Branch 20.8 20.8 EFG Bank (Luxembourg) SA, Portugal Branch 5.9 3.2 2.7 Total 396.7 204.8 3.2 188.7 * Taxed as single fiscal unity with EFG Investment (Luxembourg) SA. 31 December 2020 CHF millions Expiry in 1–3 years CHF millions Expiry in 4–7 years CHF millions Expiry after 7 years CHF millions EFG International AG, Switzerland 244.6 244.6 EFG Bank (Luxembourg) S.A., Luxembourg 169.0 169.0 EFG Bank AG, Switzerland 132.6 132.6 BSI SA 34.5 34.5 EFG Bank AG, Singapore Branch 31.1 31.1 EFG Bank AG, Hong Kong Branch 7.7 7.7 Total 619.5 244.6 132.6 242.3 40. Other assets Note 31 December 2021 CHF millions 31 December 2020 CHF millions Held-for-sale 41 200.4 179.4 Gold and other precious metals 178.8 178.0 Settlement balances 138.5 136.9 Prepaid expenses 110.3 86.2 Net pension asset 52 72.0 Accrued income 32.3 36.7 Repossessed properties 14.0 10.3 Current income tax assets 6.4 7.4 Other assets and receivables 63.6 80.5 Other assets  816.3 715.4 Comparative information has been adjusted. Settlement balances of CHF 138.5 million (2020: CHF 136.9 million) reflect the trade date versus settlement date accounting principle, which is applied on the issuance of structured products and relate to transactions executed over the year-end period, and also to amounts to be received related to matured life insurance policies. 41. Held-for-sale Held-for-sale assets mainly reflect buildings and businesses in the process of being sold. In 2021 the balance mainly comprised an amount of CHF 144.0 million related to a business that has been contractually agreed to be sold. The business assets to be sold include loans and advances to customers of CHF 316.4 million, due from other banks of CHF 81.2 million, cash and balances with central banks of CHF 67.4 million, other assets of CHF 122.2 million, due to customers of CHF 364.6 million, due to other banks of CHF 51.8 million and other liabilities of CHF 26.8 million. In 2020 the balance mainly comprised an amount of CHF 109.5 million for a business for which the sale was completed on 31 March 2021. In April 2021, the Group entered into an agreement to sell its controlling stake in Asesores y Gestores Financieros S.A. (hereinafter AYG) to its management team. The transaction is expected to close in the first quarter of 2022, subject to regulatory approval. The Group management had the intention to sell AYG starting from January 2021. As a result, the held for sale classification date had been set at 01 January 2021. Held-for-sale assets are measured at the lower of carrying value and the fair value less costs to sell. The Group has assessed the value and no impairment on the Held-for-sale asset is required. In the segmental reporting (see note 25) AYG is included in the Continental Europe and Middle East segment. The summarised information of AYG is presented in note 58. A building with a carrying value of CHF 56.4 million is included in Held-for-sale assets since 2020. The Group remains committed to its plan to sell the asset. 42. Valuation of financial assets and liabilities Accounting principle All financial assets are recorded on the day the transaction is undertaken, with the exception of loans and advances to customers, which are entered in the balance sheet on their respective value dates. Purchases and sales of other financial assets at fair value or amortised cost are recognised on trade date, which is the date on which the Group commits to purchase or sell the asset. Loans and advances to customers are recognised when cash is advanced to the borrowers. Measurement methods: Amortised cost and effective interest rate The amortised costs does not consider expected credit losses and does include transaction costs, premiums or discounts and fees paid or received that are integral to the effective interest rate, such as origination fees. When the Group revises the estimates of future cash flows, the carrying value of the respective financial asset or financial liability is adjusted to reflect the new estimated discount using the original effective interest rate. Any changes are recognised in profit or loss. Initial recognition and measurement At initial recognition, the Group measures a financial asset or financial liability at its fair value. In case of a financial asset or financial liability subsequently not measured at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or issue of the financial asset or financial liability, such as fees and commissions, are included to the fair value at initial recognition. Transaction costs of financial assets and financial liabilities carried at fair value through profit or loss are expensed as incurred. Business models: The business model reflects how the Group manages the assets in order to generate cash flows. That is, whether the Group’s objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these is applicable (e.g. financial assets are held for trading purposes), then the financial assets are classified as ‘other’ business model and measured at FVTPL. Factors considered by the Group in determining the business model for a group of assets include past experience on how the cash flows for these assets were collected, how the asset’s performance is evaluated and reported to key management personnel, how risks are assessed and managed and how management are compensated. Solely payment of principal and interest: where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Group assesses whether the financial instrument’s cash flows represent solely payments of principal and interest (the ‘SPPI test’). In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, based on qualitative or quantitative criteria, the related financial asset is classified and measured at fair value through profit or loss. Fair value through other comprehensive income Debt instruments that are held for collection of contractual cash flows and for selling the assets, where the asset’s cash flows represent solely payments of principal and interest, and that are not designated at fair value through profit or loss, are measured at fair value through other comprehensive income. Movements in the carrying amount are taken through other comprehensive income, except for loss allowances, interest revenue and foreign exchange gains and losses on the instruments’ amortised cost, which are recognised in profit and loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and recognised in 'Net gains/losses on derecognition of financial assets and liabilities’. Interest income from these financial assets is included in 'Interest income' using the effective interest rate method. Equity investments are instruments that meet the definition of equity from the issuer’s perspective. Examples of equity investments include basic ordinary shares. The Group subsequently measures all equity investments at fair value through profit and loss, except where the Group’s management has elected at initial recognition to irrevocably designate an equity investment at fair value through other comprehensive income. The Group’s policy is to designate equity investments in fair value through other comprehensive income when those investments are held for purposes other than to generate investment returns. When this election is used, fair value gains and losses are recognised in other comprehensive income and are not subsequently reclassified to profit and loss, including on disposal. Impairment losses (and reversal of impairment losses) are not reported separately from other changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit and loss as other income when the Group’s right to receive payment is established. Fair value through profit or loss Assets that do not meet the criteria for amortised cost or fair value through other comprehensive income are measured at fair value through profit or loss. Other movements in the fair value (for example from interest rate or credit risk changes) are not part of a hedging relationship and are presented in the income statement within ‘Fair value gains less losses on financial instruments measured at fair value’ in the period in which they arise. Gains and losses on equity investments at fair value through profit and loss are included in ‘Fair value gains less losses on financial instruments measured as fair value’. Impairment The Group assesses loss allowances at each reporting date. The measurement of expected credit loss reflects: – An unbiased and probability-weighted value that is determined by evaluating a range of possible outcomes – The time value of money – Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions Classification and subsequent measurement of financial liabilities, financial guarantees contracts and loan commitments In both the current and prior period, financial liabilities are classified as subsequently measured at amortised cost, except for: – Financial liabilities at fair value through profit or loss: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in the trading booking). Gains or losses on financial liabilities designated at fair value through profit or loss are presented partially in other comprehensive income (the value of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability, which is determined as the value that is not attributable to changes in market conditions that give rise to market risk) and partially profit or loss (the remaining value of change in the fair value of the liability). This is unless such a presentation would create, or enlarge, an accounting mismatch in which case the gains and losses attributable to changes in the credit risk of the liability are also presented in profit or loss. – Financial guarantee contracts and loan commitments: financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of the expected credit loss value; and the premium received on initial recognition less any income recognised upfront. Loan commitments provided by the Group are measured as the value of the expected loss allowance. For loan commitments and financial guarantee contracts, the loss allowance is recognised as a provision. If the contract includes both a loan and an undrawn commitment and the expected credit loss on the undrawn commitment cannot be separated from the loan component, the expected credit loss on the undrawn commitment is recognised together with the loss allowance for the loan. Derecognition of financial assets and liabilities A financial asset, or a portion thereof, is derecognised when the contractual rights to receive cash flows from the asset have expired, or when they have been transferred and either (i) the Group transfers substantially all the risks and rewards of ownership, or (ii) the Group neither transfers nor retains substantially all the risks and rewards of ownership and the Group has not retained control. A financial liability is derecognised when extinguished (i.e. the obligation specified in the contract is discharged, cancelled or expires). 42.1 Financial assets and liabilities measured at fair value Accounting judgement The fair value of financial instruments that are not quoted in an active market is determined using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the personnel that created them. All models are validated before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. (a) Fair value hierarchy IFRS 13 requires classification of financial instruments at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: – Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities – Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as price) or indirectly (i.e. derived from prices) – Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There were no transfers between levels in the current year. 31 December 2021 Level 1 CHF millions Level 2 CHF millions Level 3 CHF millions Total CHF millions Derivative financial instruments (assets) Currency derivatives 269.1 269.1 Interest rate derivatives 44.9 44.9 Equity derivatives 610.5 610.5 Other derivatives 14.9 14.9 Life insurance related 34.1 34.1 Total derivatives assets – 939.4 34.1 973.5 Financial assets at fair value through profit and loss Debt 435.0 452.6 887.6 Equity 5.2 0.2 103.9 109.3 Life insurance related 787.8 787.8 Investment funds 22.7 22.7 Total financial assets at fair value through profit and loss 440.2 475.5 891.7 1,807.4 Total assets measured at fair value through profit and loss 440.2 1,414.9 925.8 2,780.9 Financial assets at fair value through other comprehensive income Debt 5,832.0 5,832.0 Equity 0.6 0.6 Total financial assets measured at fair value through other comprehensive income 5,832.0 0.6 – 5,832.6 Total assets measured at fair value 6,272.2 1,415.5 925.8 8,613.5 31 December 2021 Level 1 CHF millions Level 2 CHF millions Level 3 CHF millions Total CHF millions Derivative financial instruments (liabilities) Currency derivatives (283.6) (283.6) Interest rate derivatives (50.1) (50.1) Equity derivatives (722.8) (722.8) Other derivatives (19.3) (19.3) Total derivatives liabilities – (1,075.8) – (1,075.8) Financial liabilities designated at fair value Equity (65.6) (3.8) (69.4) Debt (0.4) (0.2) (0.6) Structured products (254.3) (254.3) Life insurance related (163.2) (163.2) Total financial liabilities designated at fair value (66.0) (258.3) (163.2) (487.5) Total liabilities measured at fair value (66.0) (1,334.1) (163.2) (1,563.3) Assets less liabilities measured at fair value 6,206.2 81.4 762.6 7,050.2 31 December 2020 Level 1 CHF millions Level 2 CHF millions Level 3 CHF millions Total CHF millions Derivative financial instruments (assets) Currency derivatives 418.5 418.5 Interest rate derivatives 26.1 26.1 Equity derivatives 640.6 640.6 Other derivatives 19.6 19.6 Life insurance related 49.9 49.9 Total derivatives assets – 1,104.8 49.9 1,154.7 Financial assets at fair value through profit and loss Debt 606.2 482.8 1,089.0 Equity 26.1 0.3 99.1 125.5 Life insurance related 894.7 894.7 Investment funds 23.0 23.0 Other Total financial assets at fair value through profit and loss 632.3 506.1 993.8 2,257.7 Total assets measured at fair value through profit and loss 632.3 1,610.9 1,043.7 3,412.4 Financial assets at fair value through other comprehensive income Debt 4,947.3 4,947.3 Equity 5.7 5.7 Total financial assets at fair value through other comprehensive income 4,947.3 5.7 – 4,953.0 Total assets measured at fair value 5,579.6 1,616.6 1,043.7 8,365.4 Derivative financial instruments (liabilities) Currency derivatives (537.4) (537.4) Interest rate derivatives (108.5) (108.5) Equity derivatives (706.8) (706.8) Other derivatives (26.0) (26.0) Total derivatives liabilities – (1,378.7) – (1,378.7) Financial liabilities designated at fair value Equity (8.3) (0.4) (8.7) Debt (30.9) (4.5) (35.4) Structured products (272.6) (272.6) Life insurance related (175.4) (175.4) Total financial liabilities designated at fair value (39.2) (277.5) (175.4) (492.1) Total liabilities measured at fair value (39.2) (1,656.2) (175.4) (1,870.8) Assets less liabilities measured at fair value 5,540.4 (39.6) 868.3 6,494.6 (i) Financial instruments in level 1 The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily quoted bonds and equity. (ii) Financial instruments in level 2 The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value financial instruments include: – Quoted market prices or dealer quotes for similar instruments – The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves – The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value – Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments (b) Movements of level 3 instruments Assets in level 3 Derivative financial instruments CHF millions Financial assets measured at fair value through profit and loss CHF millions Total assets in level 3 CHF millions At 01 January 2021 49.9 993.8 1,043.7 Total gains or losses in the income statement – Net loss from changes in fair value (3.2) (69.1) (72.3) Purchases/Premiums paid 2.5 148.3 150.8 Disposals/Premiums received (16.2) (208.8) (225.0) Exchange differences 1.2 27.4 28.6 At 31 December 2021 34.2 891.6 925.8 Change in unrealised gains or losses for the period included in the income statement for assets held at the end of the reporting period (3.2) (69.1) (72.3) Liabilities in level 3 Financial liabilities designated at fair value CHF millions Total liabilities in level 3 CHF millions At 01 January 2021 175.4 175.4 Total gains or losses in the income statement – Net gains from change in fair value (9.9) (9.9) Purchases/Premiums paid 12.2 12.2 Disposals/Premiums received (20.1) (20.1) Exchange differences 5.7 5.7 At 31 December 2021  163.3 163.3 Change in unrealised gains or losses for the period included in the income statement for liabilities held at the end of the reporting period (9.9) (9.9) Assets in level 3 Derivative financial instruments CHF millions Financial assets measured at fair value through profit and loss CHF millions Total assets in level 3 CHF millions At 01 January 2020 53.7 1,053.8 1,107.5 Total gains or losses in the income statement – Net loss from changes in fair value 3.7 (7.3) (3.6) Purchases/Premiums paid 2.7 170.3 173.0 Disposals/Premiums received (5.3) (132.6) (137.9) Transfer to Other assets (3.0) (3.0) Exchange differences (4.9) (87.4) (92.3) At 31 December 2020 49.9 993.8 1,043.7 Change in unrealised gains or losses for the period included in the income statement for assets held at the end of the reporting period 3.7 (7.3) (3.6) Liabilities in level 3 Financial liabilities designated at fair value CHF millions Total liabilities in level 3 CHF millions At 01 January 2020 181.9 181.9 Total gains or losses in the income statement – Net loss from changes in fair value 7.1 7.1 Purchases/Premiums paid (8.3) (8.3) Disposals/Premiums received 11.7 11.7 Exchange differences (17.0) (17.0) At 31 December 2020  175.4 175.4 Change in unrealised gains or losses for the period included in the income Statement for liabilities held at the end of the reporting period  7.1 7.1 (c) Fair value methodology used for level 3 instruments – valuation technique Valuation governance The Group’s model governance is outlined in a model vetting policy, which describes the Group’s model risk governance framework, model validation approach and the model validation process. A significant part of the independent price verification process is the assessment of the accuracy of modelling methods and input assumptions, which return fair value estimates derived from valuation techniques. As part of the model governance framework, the benchmarking of fair value estimates is performed against external sources and recalibration performed on a continuous basis against changes in fair value versus expectations. Fair value measurements are compared with observed prices and market levels, for the specific instrument to be valued whenever possible. As a result of the above and in order to align with independent market information and accounting standards, valuation adjustments may be made to the fair value estimate. Valuation techniques If the market for a financial instrument is not active, the Group establishes fair value by using one of the following valuation techniques: – Recent arm's-length market transactions between knowledgeable, willing parties (if available) – Reference to the current fair value of another instrument (that is substantially the same) – Discounted cash flow analysis – Option pricing models – Net asset values Financial statement line item 31 December 2021 CHF millions 31 December 2020 CHF millions Discounted cash flow analysis Products Financial assets at fair value through profit and loss Equities 103.9 99.1 Discounted cash flow analysis and life expectancies (non-market observable inputs) Derivatives Synthetic life insurance policies 34.1 49.9 Financial assets at fair value through profit and loss Physical life insurance policies 787.8 894.7 Financial liabilities designated at fair value Synthetic life insurance policies (163.2) (175.4) Total 762.6 868.3 The Group values certain financial instruments at fair value using models which rely on inputs to the models that are not based on observable market data (unobservable inputs). These financial instruments are classified as level 3. Below is a summary of the valuation techniques and unobservable inputs to the valuations of these level 3 financial instruments that significantly affect the value and describe the interrelationship between observable inputs and how they affect the valuation. (i) Life insurance policies The Group uses a discounted cash flow valuation technique for the valuation of physical and synthetic life settlement policies and related financial instruments. The approach makes use of market observable and non-market observable inputs. See note 32 for further details. (ii) Equities Equities comprise primarily the holding in SIX Group for CHF 79.7 million (2020: CHF 73.6 million). The participation in SIX Group is based on a valuation using the expected net asset value of SIX Group at the end of December 2021 which the Group understands would be the basis for any sale or purchase between SIX Group shareholders. As SIX Group has not yet published its financial statements for 2021 at the time of preparing these consolidated financial statements, the Group has made an estimate of the net asset value. To determine the net asset value as of 31 December 2021, the Group uses published SIX Group half-year net asset value and adds a projected profit for the period to December 2021, net of dividends paid. The estimated net asset value of SIX Group at 31 December 2021 has increased relative to the estimated net asset value at 31 December 2020, primarily due to the estimated 2021 profit through profit and loss, partially compensated by dividend distributed in June 2021. As a result, the EFG International Group recorded a gain of CHF 6.1 million (2020: CHF 2.0 million). The sensitivity to the valuation of SIX Group is primarily linked to the changes in the net asset value of SIX Group, and the gain/loss taken through profit and loss for a 10% higher and 10% lower SIX Group profit would be CHF 0.2 million gain or CHF 0.2 million loss on this position classified as fair value through profit and loss. 42.2 Financial assets and liabilities measured at amortised cost The table below summarises the carrying values and fair values of those financial assets and liabilities that were measured at amortised cost as of 31 December 2021: Note Carrying value CHF millions Fair value CHF millions Difference CHF millions 31 December 2021 Financial assets Due from other banks (i) 2,562.3 2,564.1 1.8 Loans and advances to customers (ii) 18,225.6 18,477.1 251.5 20,787.9 21,041.2 253.3 Financial liabilities Due to other banks (iii) 556.0 556.0 Due to customers (iii) 32,516.8 32,517.0 0.2 Subordinated loans (iv) 182.7 184.3 1.6 Financial liabilities at amortised cost (v) 4,222.1 4,215.8 (6.3) 37,477.6 37,473.1 (4.5) Net assets and liabilities not measured at fair value (16,689.7) (16,431.9) 257.8 As at 31 December 2020 Financial assets Due from other banks (i) 3,097.0 3,098.3 1.3 Loans and advances to customers (ii) 18,223.0 18,631.5 408.5 21,320.0 21,729.8 409.8 Financial liabilities Due to other banks (iii) 443.6 443.6 Due to customers (iii) 30,841.6 30,845.7 4.1 Subordinated loans (iv) 355.8 364.1 8.3 Financial liabilities at amortised cost (v) 4,516.5 4,543.1 26.6 36,157.5 36,196.5 39.0 Net assets and liabilities not measured at fair value (14,837.5) (14,466.7) 370.8 (i) Due from other banks Due from other banks includes inter-bank placements and items in the course of collection. The fair value of floating rate placements, overnight deposits and term deposits with a maturity of less than 90 days is assumed to be their carrying amount, as the effect of discounting is not significant. The fair values are within level 2 of the fair value hierarchy. (ii) Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received up to the next interest reset date. Expected cash flows are discounted at current market rates to determine fair value. Determined fair values are within level 2 of the fair value hierarchy. (iii) Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. Expected cash flows are discounted at current market rates to determine fair value. Determined fair values are within level 2 of the fair value hierarchy. (iv) Subordinated loans The estimated fair value of the subordinated loans is based on the quoted market prices for these listed securities. Determined fair values are within level 2 of the fair value hierarchy. (v) Financial liabilities at amortised cost The value of structured products sold to clients is reflected on an accrual basis for the debt host (and on a fair value for the embedded derivative). The fair value of the debt host is based on the discounted amount of estimated future cash flows expected to be paid up to the date of maturity of the instrument. Expected cash flows are discounted at current market rates to determine fair value. The fair values are within level 2 of the fair value hierarchy. 43. Offsetting Accounting principle Financial assets and liabilities are offset and the net amount presented in the balance sheet when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Such a right of set-off must not be contingent on a future event and must be legally enforceable in all of the following circumstances: – In the normal course of business – In the event of default – In the event of insolvency or bankruptcy The following financial assets and financial liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements. Gross amounts of recognised financial assets Gross amounts of recognised financial liabilities set off in the balance sheet Net amounts of recognised financial assets presented in the balance sheet Related amounts not set off in the balance sheet At 31 December 2021  Financial assets subject to netting agreements Cash collateral  Net exposure Due from other banks 305.0 305.0 (305.0) Derivatives 973.6 973.6 (557.2) (398.8) 17.6 FVTPL – Life insurance policies 146.7 146.7 (146.7) Total financial assets 1,425.3 – 1,425.3  (1,008.9) (398.8)  17.6 Gross amounts of recognised financial liabilities Gross amounts of recognised financial assets set off in the balance sheet Net amounts of recognised financial liabilities presented in the balance sheet Related amounts not set off in the balance sheet At 31 December 2021  Financial liabilities subject to netting agreements Cash collateral  Net exposure Derivatives 1,075.8 1,075.8 (540.7) (512.0) 23.1 FVTPL – Synthetic life insurance 163.2 163.2 (163.2) Total financial liabilities 1,239.0 – 1,239.0  (703.9) (512.0)  23.1 Gross amounts of recognised financial assets Gross amounts of recognised financial liabilities set off in the balance sheet Net amounts of recognised financial assets presented in the balance sheet Related amounts not set off in the balance sheet At 31 December 2020  Financial assets subject to netting agreements Cash collateral  Net exposure Due from other banks 317.6 317.6 (317.6) Derivatives 1,154.7 1,154.7 (634.6) (487.2) 32.9 FVTPL – Life insurance policies 149.5 149.5 (149.5) Total financial assets 1,621.8 – 1,621.8  (1,101.7) (487.2)  32.9 Gross amounts of recognised financial assets Gross amounts of recognised financial liabilities set off in the balance sheet Net amounts of recognised financial assets presented in the balance sheet Related amounts not set off in the balance sheet At 31 December 2020  Financial liabilities subject to netting agreements Cash collateral  Net exposure Derivatives 1,378.7 1,378.7 (608.6) (741.3) 28.8 FVTPL – Synthetic life insurance 175.4 175.4 (175.4) Total financial liabilities 1,554.1 – 1,554.1  (784.0) (741.3)  28.8 At the end of December 2020 and December 2021, no derivative financial instruments have been netted. For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement between the Group and the counterparty allows for the net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis. In the absence of such an election, financial assets and liabilities will be settled on a gross basis, however, each party to the master netting agreement or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party. Per the terms of each agreement, an event of default includes failure by a party to make payment when due; failure by a party to perform any obligation required by the agreement (other than payment) if such failure is not remedied within periods of 30 to 60 days after notice of such failure is given to the party; or bankruptcy. 44. Shares in subsidiary undertakings The following is a listing of the Group’s main subsidiaries at 31 December2021: Name Line of business                                         Country of incorporation Ownership Main subsidiaries EFG Bank AG, Zurich Bank Switzerland 100% EFG Bank (Monaco), Monaco Bank Monaco 100% EFG Bank & Trust (Bahamas) Ltd, Nassau Bank Bahamas 100% EFG Bank von Ernst AG, Vaduz Bank Liechtenstein 100% EFG Bank (Luxembourg) S.A., Luxembourg Bank Luxembourg 100% EFG Private Bank Ltd, London Bank England & Wales 100% A&G Banca Privada S.A., Madrid Bank Spain 41% EFG Asset Management (Switzerland) SA Asset Management Company Switzerland 100% EFG Asset Management (UK) Ltd Asset Management Company England & Wales 100% Patrimony 1873 SA, Lugano Asset Management Company Switzerland 100% EFG Capital International Corp, Miami Broker dealer USA 100% Shaw and Partners Ltd, Sydney Broker dealer Australia 100% Chestnut II Mortgage Financing PLC Finance Company England & Wales 100% EFG International (Guernsey) Ltd Finance Company Guernsey 100% EFG International Finance (Luxembourg) Sarl Finance Company Luxembourg 100% EFG International Finance (Guernsey) Structured product issuance Guernsey 100% EFG Investment (Luxembourg) SA, Luxembourg Holding Luxembourg 100% The list of entities comprises subsidiaries that are generally contributing CHF 5 million or more to the Net profit attributable to equity holders of the Group. Also included are entities that are deemed regionally significant or otherwise relevant from an operational perspective. The main change in the percentage shareholding is the increase to 100% (61% in 2020) in Shaw and Partners Ltd. The Group uses other entities to manage assets on behalf of its customers. These entities are subject to an investment management agreement in which the Group acts as administrator only and is remunerated via a fixed fee. In some of these entities, the Group is participating in the funding by providing loan facilities granted which are secured by way of fund assets. The management has assessed that the Group has no effective power over these entities nor over the operations of the entity, as it is not the asset manager, and also it is not exposed materially to a variability of returns from these entities. 45. Due to other banks 31 December 2021 CHF millions 31 December 2020 CHF millions Due to other banks at sight 516.5 405.3 Due to other banks at term 39.5 38.3 Due to other banks 556.0 443.6 46. Due to customers 31 December 2021 CHF millions 31 December 2020 CHF millions Non-interest bearing 24,272.0 22,956.4 Interest bearing 8,244.8 7,885.2 Due to customers 32,516.8 30,841.6 47. Financial liabilities at fair value Valuation basis 31 December 2021 CHF millions 31 December 2020 CHF millions Synthetic life insurance Discounted cash flow analysis 163.2 175.4 Equity securities Quoted 0.6 8.8 Debt securities Quoted 69.5 35.3 Structured products Unquoted 254.3 272.6 Total financial liabilities at fair value 487.6 492.1 The movement in the account is as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions At 01 January 492.1 552.0 Additions 330.5 322.6 Disposals (sale and redemption) (330.6) (368.6) Net gains from changes in fair value through profit and loss (9.9) 7.1 Exchange differences 5.5 (21.0) At 31 December  487.6 492.1 Synthetic life insurance See note 32 for further details. 48. Financial liabilities at amortised cost Accounting principle In the cash flow statement, the Group presents issuance and redemptions of structured products as financing activities, as these products primarily are to provide the Group with longer dated funding. 31 December 2021 CHF millions 31 December 2020 CHF millions Structured products issued 4,222.1 4,516.5 Total financial liabilities at amortised cost 4,222.1 4,516.5 The movement in the account is as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions At 01 January 4,516.5 5,312.9 Additions 7,097.6 6,071.3 Disposals (sale and redemptions) (7,353.0) (6,667.5) Accrued interests (38.3) (2.0) Exchange differences (0.6) (198.2) At 31 December 4,222.2 4,516.5 49. Provisions Accounting principle The Group is involved in various legal and arbitration proceedings in the normal course of its business operations. The Group establishes provisions for current and pending legal proceedings if management is of the opinion that the Group is more likely than not to face payments or losses and if the amount of such payments or losses can be reliably estimated. The nature and amount of provisions are disclosed, unless management expects the disclosure of that fact could prejudice our position with other parties in the matter. Restructuring provisions comprise employee termination payments and costs to terminate contracts. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Accounting judgement Provisions are recognised when EFG International Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. The determination of whether an outflow is probable and the amount, which is assessed by EFG International Group management in conjunction with the Group’s legal and other advisors, requires the judgement of the Group’s management. Provision for litigation risks CHF millions Other provisions CHF millions Total CHF millions At 01 January 2021 16.7 23.9 40.6 Increase in provisions recognised in the income statement 76.0 39.8 115.8 Release of provisions recognised in the income statement (1.7) (0.1) (1.8) Provisions used during the year (3.2) (20.2) (23.4) Reclassification and other movements (1.6) 0.8 (0.8) Exchange differences (0.1) 0.1 At 31 December 2021 86.1 44.3 130.4 Expected payment within 1 year 8.1 22.3 30.4 Expected payment between 1 year and 3 years 77.9 15.8 93.7 Expected payment thereafter 0.1 6.2 6.3 86.1 44.3 130.4 Provision for litigation risks The provision for litigation risks increased by CHF 69.4 million; primarily an increase of CHF 73.2 million related to a claim from the receiver of an insurance company in Taiwan (see (i) below) and due to utilisation of provisions for CHF 3.2 million for one case partially settled and for one fully settled in the period (see (ii) and (iii) below). (i) A provision of CHF 73.2 million relates to a claim by the receiver of an insurance company in Taiwan for USD 195.7 million. EFG Bank AG disbursed a loan of USD 193.8 million in 2007 and on which an expected credit loss of CHF 75.3 million was recognised in the prior year financial statements. Following a November 2021 judgement issued by the High Court of Singapore holding that the Group had a valid and enforceable pledge under Singapore law over assets held as collateral in November 2021, the Group used the collateral to repay the loan. This resulted in a reversal of the expected credit loss of CHF 75.6 million as a gain in the P&L. However, the Group has recorded a provision against legal matters of CHF 73.2 million. EFG International Group is party to multi-jurisdictional legal proceedings relating to a client relationship with a Taiwanese insurance company, which began with arbitration proceedings in Taiwan which EFG International Group lost. EFG International Group extended a loan of USD 193.8 million (excluding interest) to an affiliate of the insurance company, which was placed into receivership in 2014. The loan was secured by the assets of a separate legal entity domiciled in Jersey pursuant to a pledge agreement governed by Singapore law. The former majority shareholder and Chairman of the insurance company (who has been found guilty in Taiwan of various criminal offenses related to the misappropriation of company funds, including the proceeds of the bank loan and is currently serving a 20-year prison sentence) also gave EFG International Group a personal indemnity covering the loan. The overall relationship with the insurance company included accounts held at EFG in Hong Kong, Singapore and Switzerland. In January 2018, an arbitration tribunal in Taiwan concluded that the transaction was invalid under the law of Taiwan as a result of the insurance company’s non-compliance with Taiwanese insurance regulations. Based on that reasoning, the tribunal required EFG International Group to return the USD 193.8 million in assets held by the Jersey entity and used as collateral for the loan, plus interest at a rate of 5% per annum. EFG International Group fundamentally disagrees with the tribunal’s reasoning and the result. It appealed the validity of the award in the Taiwan courts, but that appeal was unsuccessful and has concluded. EFG International Group has, however, successfully defeated the attempt by the receiver of the insurance company in Hong Kong to enforce the award. The Hong Kong court issued a decision in November 2020 denying enforcement of the arbitration award and in a January 2021 decision, the court denied the receiver’s application for leave to appeal. Therefore, the proceedings in Hong Kong have now been concluded in favour of EFG International Group. The Taiwan tribunal did not opine on the validity of the loan collateral under the governing laws of Singapore. When the arbitration began, EFG International Group had already commenced legal proceedings to confirm the validity of the loan collateral in Singapore, which was heard in 2020. The Singapore court issued a decision in November 2021 confirming the validity of the pledge. Upon receiving notification of the judgement on the validity of the pledge in Singapore, the EFG International Group used the collateral to repay the loan. The receiver has filed its notice of appeal against the Singapore judgement. In addition, EFG International Group is considering how most appropriately to enforce the personal indemnity of the former chairman, secured through successful legal proceedings in Singapore. EFG International Group, as well as certain current and former employees, have been named in certain supplemental civil proceedings commenced by the receiver of the insurance company in Taiwan. At present, the supplemental proceeding in which EFG International Group is named as a defendant is at a preliminary stage in the lawsuit. The receiver seeks to recover civil damages in an amount equivalent to the value of the assets used as collateral for the loan, plus interest accruing at 5% per annum, which totals approximately USD 253.6 million at 31 December 2021, resulting in an unprovided amount of approximately USD 173.3 million (CHF 159.1 million) if the matter was resolved as at 31 December 2021. The Group has assessed possible courses of action by the receiver and a multitude of potential outcomes in regard to resolution of this case and has recorded a provision based on the discounted probability-weighted cash flows arising from these scenarios. EFG International Group has recorded a provision of equal amount in its Swiss GAAP financial statements, which form the basis of the EFG International Group’s regulatory capital adequacy reporting. These losses have the potential to arise between one and three years. (ii) A provision of CHF 7.7 million (2020: CHF 7.0 million) relates to client claims, following the discovery of irregularities in the management of clients’ accounts by a former employee. An amount of CHF 1.5 million was utilised from the provision in the year as an amount was paid out during 2021 to settle one of the client claims. The remaining position is likely to be resolved within a year. (iii) Other provisions of CHF 5.2 million (2020: CHF 9.7 million) remain for various small litigation cases. One of these cases was settled for CHF 1.5 million during the year, while the remainder of the decrease versus end-2020 being due to the reversal of a provision no longer required based on management’s judgement. Other provisions Other provision increased by CHF 20.4 million. The increase in provisions recognised in the income statement of CHF 39.8 million relates to the: – increased provision (see (ii) below) for CHF 10.5 million related to the life insurance premiums litigation, – increased provision for restructuring costs for CHF 23.2 million (see (i) below). Provisions utilised in the period relate to those described in (i) and (ii) below – the provision for restructuring costs have been utilised for CHF 11.0 million and the life insurance litigation success provision for CHF 8.5 million. (i)The Group has a provision of CHF 20.4 million (2020: CHF 9.3 million) for restructuring costs primarily relating to businesses being closed, which are likely to be utilised within a year. (ii) The Group has a provision of CHF 10.2 million (2020: CHF 7.9 million) which represents the amount that will have to be paid if the Group succeeds in recovering excess life insurance premiums from insurers who increased premiums. During the period one of the four cases was resolved and the Group utilised CHF 8.5 million of the provision against the successful resolution of that one case, whilst increasing the provision by CHF 10.5 million for the remaining three cases. The overall position is likely to be resolved between one and three years. (iii) A provision of CHF 1.5 million (2020: CHF 1.4 million) has been made for claims arising from fraudulent activity by an ex-CRO. In addition, based on a June 2021 demand letter, the Group has been made aware that additional claims of approximately CHF 23 million may arise, against which the Group is not able to assess the potential loss (see contingent liabilities). The Group is assessing the legal and factual merits of these claims. The overall position is likely to be resolved within a year. (iv) The Group has a provision of CHF 0.5 million (2020: CHF 0.6 million) for credit default risks. This relates to the expected credit losses under IFRS 9. The Group calculates expected credit losses on off-balance-sheet positions primarily related to guarantees. These losses are not expected to arise in the next 12 months. The profit and loss impact is reflected in the loss allowances expense, while for all other provision movements, the profit and loss impact is reflected in the provision expense line of the profit and loss. (v) Other provisions of CHF 11.7 million remain for various other potential cash outflows. 50. Contingent liabilities EFG International Group is involved in various legal and arbitration proceedings in the normal course of its business operations. The Group establishes provisions (see note 49) for current and threatened pending legal proceedings if management is of the opinion that the Group is more likely than not to face payments or losses and if the amount of such payments or losses can be reliably estimated. The Group discloses contingent liabilities that the management believes are material, or to be significant due to potential financial, reputational and other effects. The Group has differentiated the contingent liabilities into four categories as follows: a) Group does not expect a material cash outflow b) Group cannot reliably measure the obligation c) Group cannot reliably measure the obligation, however any obligation arising would be offset by indemnification received d) Group does not expect a material cash outflow, and any obligation arising would be offset by indemnification received. (a) Group does not expect a material cash outflow The following contingent liabilities that management is aware of relate to legal proceedings which could have a material effect on the Group. However, based on presently available information and assessments, the Group currently does not expect that any of these contingent liabilities will result in material provisions or other liabilities. The Group is engaged in certain litigation proceedings mentioned below and is vigorously defending the cases. The Group believes it has strong defences to the claims. The Group does not expect the ultimate resolution of any of the below-mentioned proceedings to which the Group is party to have a significantly adverse effect on its financial position. (i) Certain investors and the liquidator of a fund regulated in Guernsey have commenced legal proceedings. The lawsuit concerns damages in an amount ranging up to approximately GBP 73.0 million arising out of problems with the fund’s investments and alleges that the fund directors and the Group, as administrator, misled investors and acted in breach of their statutory duties. The Group believes it has strong defences to the allegations and maintains its vigorous defence. (ii) Claims have been made in 2014 against the Group in the Bahamas for approximately USD 17 million, which the Group is vigorously defending. The Group is being sued by the investors in the fund and the fund itself on the grounds of various alleged breaches. The Group strongly believes that there has been no wrongdoing on its part and that it has strong defences to the claims. (b) Group cannot reliably measure the obligation The following contingent liabilities that management is aware of could have a material effect on the Group. However, based on presently available information and assessments, the Group is not able to reliably measure the possible obligation. (i) The Group had certain accounts in the name of an institutional client which was designated by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury as Specially Designated Nationals on account of assisting drug-trafficking groups in money laundering. When an issue was raised as to whether the Group violated OFAC sanctions after the client’s OFAC designation because of subsequent transactions and interactions between US persons at the Group and the institutional client, the Group promptly initiated an internal investigation of this and other potential OFAC violations, which covered all the Group’s booking centres. The investigation has concluded, and the Group is cooperating with OFAC on the matter. (ii) Claims have arisen from possible fraudulent activities by a former employee. Certain claims have been provided for (see Provisions note 49), whilst investigations are ongoing related to additional potential claims (based on a June 2021 demand letter) of approximately CHF 23 million. The Group is assessing the legal and factual merits of these claims, however currently there is no reliable estimate of the potential loss on these potential claims. (iii) The Group is engaged in litigation proceedings initiated in 2012 by a client claiming that he has been misled insofar as he thought that his investments were capital-protected, that the agreed investment strategy has not been followed, and that unauthorised transactions were performed. The damages claimed is approximately EUR 49 million plus interest since 2008. Although the Group is vigorously defending the case and believes it has strong defences to the claims, there is no reliable estimate of what losses might be sustained on the claims. (iv) In 2019, the Group was named as a defendant in a claim brought against over 30 defendants in the Commercial Court in London by the Public Institution for Social Security (PIFSS) of Kuwait. The allegations centre on the former Director General of PIFSS, who is alleged to have been paid secret commissions, and to have been an account holder at EFG beginning in 2008. The claim against the Group centres on allegations that, between 1995 and 2012, the former Director General of PIFSS procured the payment to another defendant of approximately USD 332.1 million of secret commissions, as well as USD 44.6 million in other payments representing proceeds of other schemes alleged in the claim. EFG is investigating the factual and legal merits of the claim. At present, the Group cannot reliably estimate its potential liability in the matter. (v) The Trustee of Bernard L. Madoff Investment Securities LLC (BLMIS) has filed a complaint asserting that redemption payments totalling USD 411 million allegedly received by the Group on behalf of clients should be returned to BLMIS. This action includes the redemptions claimed by the Fairfield liquidators (see next paragraph). The Group believes it has strong defences to the claims and maintains its vigorous defence of the lawsuits. (vi) The Group has been named as a defendant in lawsuits filed by the liquidators of Fairfield Sentry Ltd. and Fairfield Sigma Ltd. asserting that redemption payments received by the Group on behalf of clients should be returned. The amount claimed is uncertain, but the Group believes the amount claimed is approximately USD 217 million. The Group believes it has strong defences to the claims and maintains its vigorous defence of the lawsuits. (c) Group cannot reliably measure the obligation, however any obligation arising would be offset by indemnification received The following contingent liabilities (that arose through the acquisition of BSI), that management is aware of, could have a material effect on the Group. However, based on presently available information and assessments, the Group is not able to reliably measure the possible obligation. The Group is entitled to indemnification against losses that may arise from these matters listed below from the seller of the former BSI Group. (i) The Office of the Attorney General in Switzerland is currently conducting criminal investigations against BSI into money laundering allegations involving 1Malaysia Development Berhad (1MDB), a sovereign wealth fund owned by the government of Malaysia. Certain 1MDB-related accounts were opened and maintained by the BSI Group pre-acquisition by the EFG International Group. The Group is cooperating with the Swiss authorities in this ongoing investigation. (ii) The US Attorney’s Office for the Eastern District of New York initiated criminal investigations into bribery and money laundering allegations involving officials of Fédération Internationale de Football Association (FIFA) and its member associations and related parties. Certain FIFA-related accounts were opened and maintained by the Group and they are currently under review. The US Department of Justice has issued requests for assistance to the Swiss authorities in obtaining information for some of the FIFA-related accounts. The US authorities are also investigating whether the Group complied with their anti-money laundering obligations in connection with the FIFA-related accounts. The Group is cooperating with the US authorities in the ongoing investigations. (iii) The Group (through the acquisition of BSI) is the defendant in two civil proceedings in Italy, arising from its role as a Trustee of certain trusts associated with three families who owned an Italian shipping company which was declared bankrupt in 2012, allegedly causing aggregate losses to approximately 13,000 bondholders through the issuance of approximately EUR 1 billion of bonds that did not comply with applicable laws. In 2014, members of the families involved were convicted for embezzlement and fraud in Italy. The claimants in the civil proceedings started in 2015 claim that the Group was aware of the embezzlement scheme and the Group, in its capacity as Trustee of these trusts, would be liable for damages and disgorgement of assets and profits should it be found to have committed any wrongdoing. The Group is vigorously defending and believes it has strong defences to the claims. (iv) A client brought legal claims against the Group for CHF 54 million in purported actual and consequential damages arising between 2010 and 2017, alleging that the Group did not manage the account in accordance with the mandate. The Group is vigorously defending against these claims and believes it has strong defences to the claims. (d) Group does not expect a material cash outflow, however any obligation arising would be offset by indemnification received The following contingent liability is not expected to have a significant adverse effect on the Group’s financial position and the Group is entitled to indemnification against losses that may arise from this matter from the seller of the former BSI Group. (i) ln August 2019, the Chilean tax authority made a tax liability determination arising out of BSI’s September 2015 sale of shares in a Chilean subsidiary to a third party. ln its tax return filed in 2016, BSI requested a tax refund on the grounds that the sale of the shares had generated a tax loss. The Chilean tax authority, however, disputed the appropriate fair market value of the disposed shares, as well as the appropriate tax rate applicable to the transaction. The total outstanding tax liability as determined by the Chilean tax authority amounts to CHF 24.0 million. In April 2020, the Group commenced legal proceedings challenging the tax authority’s assessment, and believes it has strong defences to the tax assessment. 51. Other liabilities Note 31 December 2021 CHF millions 31 December 2020 CHF millions Deferred income and accrued expenses 328.2 268.5 Lease liabilities (see below) 223.0 210.9 Settlement balances 51.2 105.6 Short term compensated absences 11.6 13.5 Retirement benefit obligations 52 118.7 Other liabilities 20.7 34.7 Deferred consideration - acquisition of Shaw and Partners Ltd 1.6 3.3 Contingent consideration - acquisition of Shaw and Partners Ltd 4.9 7.5 Total other liabilities 641.2 762.7 The contractual maturity of lease liabilities is as follows: Contractual maturities of lease liabilities Up to 1 month CHF millions 1–3 months CHF millions 3–12 months CHF millions 1–5 years CHF millions Over 5 years CHF millions Total CHF millions 31 December 2021 Contractual lease liabilities 2.6 6.4 26.2 132.7 65.9 233.8 Total contractual lease liabilities 2.6 6.4 26.2 132.7 65.9 233.8 Contractual maturities of lease liabilities Up to 1 month CHF millions 1–3 months CHF millions 3–12 months CHF millions 1–5 years CHF millions Over 5 years CHF millions Total CHF millions 31 December 2020 Contractual lease liabilities 3.5 10.1 26.9 129.2 45.5 215.2 Total contractual lease liabilities 3.5 10.1 26.9 129.2 45.5 215.2 52. Retirement benefit obligations Accounting principle Retirement benefit obligations The Group operates various pension schemes which are either defined contribution or defined benefit plans, depending on prevailing practice in each country. For defined contribution plans, the Group pays contributions to publicly or privately administered pension plans and has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. This applies to most of the locations where the Group operates except for Switzerland. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. In Switzerland, the Group maintains pension plans, where the legal obligation is merely to pay contributions at defined rates (defined contribution), however, these plans incorporate certain guarantees of minimum interest accumulation and conversion of capital to pension, and as a result, these plans are reported as defined benefit pension plans. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used as reference of risk-free rates. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in income statement. Prepaid contributions are recognised as an asset. The Group has no legal or constructive obligations to pay further contributions if the funds do not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Accounting judgement The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. EFG International Group determines the appropriate discount rate at each reporting date. This is the interest rate used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the EFG International Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation. Other key assumptions for pension obligations are based in part on current market conditions. The Group operates four plans which under IFRS are classified as defined benefit plans. Three of these plans are in Switzerland (‘the Swiss plans’) for EFG Bank AG and one in the Channel Islands (‘the Channel Islands plan’). The Group operates a defined benefit plan in the Channel Islands (‘the Channel Islands plan’) which is reported in other assets. The Channel Islands plan has funded obligations of CHF 4.0 million; the fair value of plan assets is CHF 4.7 million, with a gain of CHF 0.1 million recognised through other comprehensive income in the current period. The disclosures below relate to the Swiss plans. Note 31 December 2021 CHF millions 31 December 2020 CHF millions Net amount recognised in the balance sheet Present value of funded obligation 1,430.8 1,530.1 Fair value of plan assets (1,502.8) (1,411.4) (Asset)/Liability recognised in the balance sheet (72.0) 118.7 Liability at 01 January 118.7 70.7 Net amount recognised in the income statement - Staff costs 21 3.1 18.2 Net amount recognised in the income statement - Provisions 0.7 Net amount recognised in other comprehensive income (118.0) 57.9 Total transactions with fund (76.5) (28.1) (Asset)/Liability at 31 December (72.0) 118.7 Present value of obligation CHF millions Fair value of plan assets CHF millions Total CHF millions At 01 January 2021 1,530.1 (1,411.4) 118.7 Current service cost 23.0 23.0 Curtailment (0.5) (0.5) Settlements (9.3) (9.3) Terminations 0.7 0.7 Past service credit - plan amendments (11.2) (11.2) Interest expense/(income) 0.9 (0.9) – Administrative costs and insurance premiums 1.1 1.1 Net amount recognised in the income statement 4.7 (0.9) 3.8 Remeasurements: Return on plan assets, excluding amounts included in interest expense/(income) (72.5) (72.5) Actuarial loss due to experience 19.3 19.3 Actuarial gain due to demographic assumptions (16.4) (16.4) Actuarial gain due to financial assumptions (48.4) (48.4) Net amount recognised in other comprehensive income (45.5) (72.5) (118.0) Plan participants contributions 13.7 (13.7) – Company contributions (76.5) (76.5) Administrative costs and insurance premiums (1.9) 1.9 – Benefit payments (70.3) 70.3 – Total transactions with fund (58.5) (18.0) (76.5) At 31 December 2021 1,430.8 (1,502.8) (72.0) Present value of obligation CHF millions Fair value of plan assets CHF millions Total CHF millions At 01 January 2020 1,522.1 (1,451.4) 70.7 Current service cost 22.9 22.9 Curtailment (6.0) (6.0) Interest expense/(income) 2.9 (2.9) – Administrative costs and insurance premiums 1.3 1.3 Net amount recognised in the income statement 21.1 (2.9) 18.2 Remeasurements: Return on plan assets, excluding amounts included in interest expense/(income) (26.0) (26.0) Actuarial loss due to experience 42.9 42.9 Actuarial loss due to financial assumptions 41.0 41.0 Net amount recognised in other comprehensive income 83.9 (26.0) 57.9 Plan participants contributions 15.0 (15.0) – Company contributions (28.1) (28.1) Administrative costs and insurance premiums (1.3) 1.3 – Benefit payments (110.7) 110.7 – Total transactions with fund (97.0) 68.9 (28.1) At 31 December 2020 1,530.1 (1,411.4) 118.7 31 December 2021 31 December 2020 31 December 2019 Significant actuarial assumptions Discount rate 0.25% 0.00% 0.20% Salary growth rate 1.25% 1.25% 1.25% Pension growth rate 0.00% 0.00% 0.00% Change in assumption Impact of an increase in assumption on present value of obligation CHF millions Impact of a decrease in assumption on present value of obligation CHF millions 2021 Sensitivity analysis Discount rate 0.10% (15.6) 17.2 Salary growth rate 0.10% 1.4 (1.2) Pension growth rate 0.10% 12.6 n/a Life expectancy 3 months 11.7 (11.5) 2020 Sensitivity analysis Discount rate 0.10% (19.2) 20.6 Salary growth rate 0.10% 1.9 (1.7) Pension growth rate 0.10% 15.4 n/a Life expectancy 3 months 12.8 (12.6) Actuarial assumptions of both financial and demographic nature are established as unbiased best estimates of future expectations. Assumptions are changed from time to time to reflect changes in the information available to use in formulating best estimates. The expected mortality is based on the UK’s Continuous Mortality Investigation (CMI) unit’s model calibrated with historical Swiss mortality data (LPP2020 generational tables) and using a 1.25% long-term trend rate. By applying the risk sharing provisions of IAS 19, the plan liabilities are calculated assuming that the pension conversion rate currently in effect will decrease in the next decade to a level based on 1.5% local funding discount rate and the mortality tables assumed for the current plan liabilities. Financial assumptions include the discount rate, the expected rate of salary growth and the expected rate of pensions increases. The discount rate is set based on consideration of the yields of high-quality corporate debt of duration similar to that of the pension liabilities. Where availability of such data is limited, the company considers yields available on government bonds and allowing for credit spreads available in other deeper and more liquid markets for high-quality corporate debt. The salary growth assumption is set based on the employer’s expectation for inflation and market forces on salaries. The plans do not guarantee any pension increases, although in the event that the plan developed a surplus according to Swiss pension law, then a discretionary pension adjustment could be possible. At the present time, projections for the plan’s development do not indicate a pension adjustment is likely and so it is assumed that pensions are fixed. The sensitivity of the valuation result to changes in assumptions is illustrated by introducing changes to one specific assumption at a time and comparing the result before and after the change. This is separately illustrated for changes in the discount rate and the expected rate of future salary increases. In practice, there may be some correlation in changes of assumptions, but for the purposes of the valuation the effect is ignored. The operation of the pension plans involves exposure to a range of risks, with the most significant being presented further below. The impact of these risks is shared between the Group and the plan participants in case of negative effects. In situations where the pension funds will accumulate surplus assets after providing the target benefits, the boards of the foundation may consider a distribution of the surplus to participants. No part of the surplus may be attributed to the Group. (i) Investment risk Plan assets are invested to achieve a target return. The actual returns earned each year are likely to vary with a result higher or lower than the target. There is a risk that the long-term average return may be higher or lower than the target. If the long-term return is lower than the target, then the fund will not have sufficient assets for plan benefits. The year-on-year variation in the return will generally be reflected directly in the defined benefit remeasurements. A component of the return earned each year is derived from investment in bonds, and these bond returns are reflected in changes in the discount rate used to measure the defined benefit obligation. As a result, benefit remeasurements through other comprehensive income resulting from asset volatility may be reduced by changes in the related obligation resulting from changes in the discount rate. (ii) Longevity risk The plans provide annuity options to individuals on retirement. These annuity options are calculated using a conversion rate which is established by the foundation and reviewed periodically. The conversion rate is calculated with an assumption for the target rate of return and the life expectancy of the pensioner. Historic experience is that life expectancy improved faster than actuarial tables predicted, and so longevity risk tended to be ‘loss generating’. (iii) Interest volatility risk There is a substantial year-on-year liability volatility due to the volatility of the discount rate used in the model which is based on market yields on bonds of a specified type. The funds allocate a substantial proportion of assets to bonds, but the availability of bonds of duration and characteristics similar in nature to the discount rate is limited so that the interest rate volatility risk cannot be eliminated. Interest rate volatility does not result in any effect on the Group performance but rather on the remeasurements recognised in other comprehensive income. (iv) Death and disability risk The number of cases of death and disability of active employees may fluctuate considerably from year to year. To mitigate the effect of this risk, the Swiss plans have contracted insurance contracts covering the cost of death and disability benefits arising each year. Plan asset The pension funds have established written investment policies whereby the fund periodically establishes an allocation strategy with target allocations and tactical ranges for the principal classes of investments (equity, fixed income, real estate and liquidity) which aims to maximise the returns on plan assets. Plan assets are invested under mandates to a number of investment portfolio managers. Investment portfolio managers’ performance is regularly evaluated against its established strategy. The actual return on plan assets was a gain of CHF 73.4 million in 2021 (2020: gain of CHF 28.9 million). The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the income statement. The plan assets do not include any shares of the EFG International Group or of any of its subsidiaries. Plan amendments, curtailments and settlements On 31 December 2021, the Group implemented a harmonisation of pension plans for employees in Switzerland, and introduced a 1e plan. Eligible employees with salaries over a threshold in the 1e plan will transfer part of their pension assets into the 1e plan, and on these assets will no longer have a capital guarantee, but they are able to choose their investment strategy based on their own risk/return profile and their assets will benefit from the full return. Effective 01 January 2022, Fondo Complementare di Previdenza di EFG SA entered into liquidation as part of the creation of an OPP2 1e solution. The plan asset allocation is as follows: 2021 Asset allocation Quoted CHF millions Unquoted CHF millions Total CHF millions in % Cash and cash equivalents 193.4 193.4 12.9% Equity instruments 395.9 395.9 26.3% Debt instruments 537.5 537.5 35.8% Real estate 105.4 211.7 317.1 21.1% Other 53.2 5.7 58.9 3.9% Total plan assets at the end of the year 1,285.4 217.4 1,502.8 100.0% 2020 Asset allocation Quoted CHF millions Unquoted CHF millions Total CHF millions in % Cash and cash equivalents 68.1 68.1 4.8% Equity instruments 506.9 506.9 35.9% Debt instruments 461.4 461.4 32.7% Real estate 157.5 200.3 357.8 25.4% Other 13.6 3.6 17.2 1.2% Total plan assets at the end of the year 1,207.5 203.9 1,411.4 100.0% The expected employer contributions to the post-employment benefit plan for the year ending 31 December 2021 are CHF 18.0 million. The Group created an employer contribution reserve in 2021 in Switzerland linked to the future liabilities of certain pensioners. The amount that has been contributed is CHF 52.0 million and is part of the net asset of CHF 72.0 million. The weighted average duration of the defined benefit obligation is 11.5 years (2020: 13.0 years). The expected maturity analysis of undiscounted pension benefits is as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions Expected maturity analysis of undiscounted pension benefits Less than 1 year 162.2 80.7 Between 1–2 years 73.5 70.1 Between 2–5 years 196.0 206.5 Over 5 years 1,043.7 1,172.8 Total 1,475.4 1,530.1 53. Subordinated loans Accounting principle Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds, net of transaction costs and the redemption value is recognised in the income statement over the life of the borrowings using the effective interest method. If the Group purchases its own debt, it is removed from the balance sheet, and the difference between the carrying amount of the liability and the consideration paid is included in gains less losses from other securities. Weighted average interest rate % Due dates 31 December 2021 CHF millions 31 December 2020 CHF millions Subordinated loans EFG International (Guernsey) Ltd – USD 197,909,000 (31 December 2020: USD 400,000,000) 5.00% p.a. March 2027 182.7 355.8 Total subordinated loans 182.7 355.8 Subordinated loans are presented net of unamortised discount on issuance of CHF 0.1 million (2020: CHF 0.8 million). The movement in subordinated loans is as follows: 31 December 2021 CHF millions 31 December 2020 CHF millions At 01 January 355.8 389.7 Accrued interest 9.6 18.8 Interest paid (11.9) (18.8) Issuance fees amortised in P&L 0.7 0.6 Payment to repurchase the subordinated loans (190.8) Premium on repurchase expensed in P&L 6.0 Exchange differences 13.3 (34.5) At 31 December 182.7 355.8 Comparative information has been adjusted. 54. Share capital Accounting principle Ordinary shares and non-voting Bons de Participation issued are classified as equity. Share issue costs Incremental costs directly attributable to the issue of new shares or Bons de Participation are shown in equity as a deduction from the proceeds attributable to share premium. Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders. Treasury shares Where the Group purchases its own equity share capital, the consideration paid is deducted from total shareholders’ equity and classified as treasury shares until they are cancelled. If such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity. The following is an analysis of the movement of share capital and share premium. The par value of EFG International AG registered shares issued is CHF 0.50 (ordinary shares) and the par value of the Group’s Bons de Participation (Preference shares) is CHF 15.00. All EFG International AG shares and Bons de Participation are fully paid. Number of shares The following is an analysis of the movement in the number of shares issued by the Group: Ordinary shares with voting right Bons de Participation without voting right Treasury shares Ordinary shares Treasury shares Bons de Participation Net Nominal CHF 0.50 CHF 15.00 CHF 0.50 CHF 15.00 At 01 January 2020 297,198,503 13,382 (6,174,768) (750) Ordinary shares repurchased (582,971) Employee equity incentive plans exercised 1,027,382 4,357,665 New shares issued 277,417 At 31 December 2020 298,225,885 13,382 (2,122,657) (750) Employee equity incentive plans exercised 2,722,165 1,845,240 Shares granted as deferred consideration on acquisition of subsidiaries 277,417 Shares issued as consideration for acquisition of subsidiaries 2,972,969 At 31 December 2021 303,921,019 13,382 – (750) Net share capital (CHF millions) 152.0 0.2 – – 152.2 On an annual basis, the Group prepares a corporate governance statement which includes a description of the capital structure. Information relating to the EFG fiduciary certificates in circulation The Group has EUR 13,382,000 notional amount of outstanding EFG Fiduciary Certificates. These were issued by Banque de Luxembourg on a fiduciary basis, in its own name but at the sole risk and for the exclusive benefit of the holders of the EFG Fiduciary Certificates. Banque de Luxembourg holds 13,382 Class B Bons de Participation issued by EFG International AG and 13,382 Class B Shares issued by EFG Finance (Guernsey) Limited. 55. Other reserves Accounting principles Share-based compensation When treasury shares or new shares issued are used to settle Restricted Stock Units, the corresponding reserve is transferred and any difference arising from the variation of the share price between the grant date and the exercise date is reflected through retained earnings. IFRS 9 CHF millions Employee share option plan CHF millions Other CHF millions Total CHF millions At 31 December 2019 17.3 192.3 76.4 286.0 Change in accounting policy * (136.6) 5.3 (131.3) At 01 January 2020 17.3 55.7 81.7 154.7 Equity-settled share-based plan expensed in the income statement 18.4 18.4 Employee equity incentive plans exercised (26.0) (26.0) Net gains on investments in debt instruments measured at fair value through other comprehensive income, with no tax effect 9.6 9.6 Net realised losses on debt instruments measured at fair value through other comprehensive income reclassified to the income statement, with no tax effect (6.8) (6.8) Change in loss allowance on debt instruments measured at fair value through other comprehensive income, with no tax effect 0.2 0.2 Net losses on investments in equity instruments measured at fair value through other comprehensive income (1.8) (1.8) Tax effect on net losses on investments in equity instruments measured at fair value through other comprehensive income 0.4 0.4 Retirement benefit loss (58.0) (58.0) Tax effect on retirement benefit loss 11.4 11.4 Net losses on hedge of net investments in foreign operations, with no tax effect (4.9) (4.9) Currency translation difference, with no tax effect (13.0) (13.0) At 31 December 2020 18.9 48.1 17.2 84.2 The comparative information has been changed, please refer to note 3. IFRS 9 CHF millions Employee share option plan CHF millions Other CHF millions Total CHF millions At 01 January 2021 18.9 48.1 17.2 84.2 Equity-settled share-based plan expensed in the income statement 26.8 26.8 Employee equity incentive plans exercised (25.5) (25.5) Net losses on investments in debt instruments measured at fair value through other comprehensive income, with no tax effect (39.8) (39.8) Net realised gains on debt instruments measured at fair value through other comprehensive income reclassified to the income statement, with no tax effect 6.3 6.3 Net losses on investments in equity instruments measured at fair value through other comprehensive income (0.1) (0.1) Tax effect on net loss on investments in equity instruments measured at fair value through other comprehensive income Retirement benefit gains 118.0 118.0 Tax effect on retirement benefit gains (23.2) (23.2) Net gain on hedge of net investments in foreign operations, with no tax effect 1.9 1.9 Currency translation difference, with no tax effect (10.4) (10.4) At 31 December 2021 (14.7) 49.4 103.5 138.2 56. Additional equity components Weighted average distribution rate %              Due dates                      31 December 2021 CHF millions 31 December 2020 CHF millions Additional equity components – issuers EFG International AG – USD 400,000,000 5.5% p.a. First optional call date of 25 January 2028 351.0 Total additional equity components 351.0 – In January 2021, the Group placed USD 400.0 million of perpetual unsecured, deeply subordinated notes, qualifying as Additional Tier 1 capital, with a 5.5% p.a. fixed distribution amount until the first optional call date of 25 January 2028 and thereafter the aggregate of the five years USD CMT Rate plus 4.659% per annum with a reset every five years. The repayment of this instrument is subject to conditions, including the prior approval of the regulator. The perpetual Additional Tier 1 Notes (the Notes) may be written off partially or in full, on a permanent basis, under several circumstances described in more detail in the prospectus, among which, if the tier 1 common equity falls below 7.0%. Based on the contractual terms of the perpetual Additional Tier 1 Notes, the Group may, at its sole discretion, elect to cancel in accordance with the terms and conditions all or part of any payment of interest. Any interest not paid shall not accumulate or be payable at any time thereafter. The non-payment of interest will not constitute an event of default by the Group. If payment of interest is not made in full, the Group’s Board of Directors shall not directly or indirectly recommend that any distribution be paid or made on any other shares issued by EFG International AG. The Notes are perpetual securities and have no fixed final redemption date. The issuer may elect in its sole discretion to redeem the Notes. The Notes will not be redeemable at any time at the option of the holders. On this basis, the Notes have been classified as equity instruments in these consolidated financial statements. Issuance fees of USD 4.0 million are deducted from the proceeds. The Group made a distribution of CHF 3.4 million in March 2021 in relation to these perpetual Additional Tier 1 Notes. 57. Dividends Final dividends per share are not accounted for until they have been ratified at the Annual General Meeting in April. A dividend in respect of 2021 of CHF 0.36 (2020: CHF 0.30) per share amounting to approximately CHF 109.4 million (2020: CHF 89.0 million), net of dividends not payable on treasury shares is to be proposed. The financial statements for the year ended 31 December2021 do not reflect this resolution, which will be accounted for in shareholders’ equity as an appropriation of retained profits, in the year ending 31 December 2021, with no tax effect for the Group. 31 December 2021 CHF millions 31 December 2020 CHF millions Dividends on ordinary shares CHF 0.15 per share related to 2019 paid on 6 May 2020 43.5 CHF 0.15 per share related to 2019 paid on 14 December 2020 44.4 CHF 0.30 per share related to 2020 paid on 5 May 2021 89.0 Total dividends on ordinary shares 89.0 87.9 Dividends on Bons de Participation For the period 01 November 2019 to 30 April 2020 at 0.290% For the period 01 May 2020 to 30 October 2020 at 0.204% For the period 01 November 2020 to 30 April 2021 at 0.000% For the period 01 May 2021 to 30 October 2021 at 0.321% Total dividends on Bons de Participation – – Distribution on additional equity components For the period 25 January 2021 to 24 March 2021 at 5.50% 3.4 Total distribution on additional equity components 3.4 – 58. Non-controlling interests 31 December 2021 CHF millions 31 December 2020 CHF millions Asesores Y Gestores Financieros S.A. 41.8 39.1 Shaw and Partners Ltd 16.9 Other 0.8 0.8 Total non-controlling interests 42.6 56.8 The total non-controlling interest primarily relates to the 59.5% interest in Asesores Y Gestores Financieros SA not held by the Group. Asesores Y Gestores Financieros SA is the holding company for A&G Banca Privada SA in Spain. During 2021 the Group has finalised the acquiring of the remaining outstanding minority stake in Shaw and Partners Ltd. There are no significant restrictions on the parent company or its subsidiaries, ability to access or use the assets and settle the liabilities of the Group, other than those that exist as a result of the subsidiaries being individually regulated. During 2021, CHF 4.6 million of profit has been allocated to the non-controlling interests of Asesores Y Gestores Financieros SA. The summarised information for Asesores Y Gestores Financieros SA, which is the only non-controlling interest that are material for the Group, is as follows: Asesores Y Gestores Financieros S.A. 31 December 2021 CHF millions 31 December 2020 CHF millions Total assets 590.2 578.9 Total liabilities 520.2 513.5 Operating income 68.2 60.7 Net profit for the year (before non-controlling interests) 7.7 4.9 59. Off-balance-sheet items 31 December 2021 CHF millions 31 December 2020 CHF millions Guarantees issued in favour of third parties 256.3 331.2 Irrevocable commitments 225.8 375.5 Total 482.1 706.7 The comparative information has been changed. The following table summarises the Group’s off-balance-sheet items by maturity: Not later than 1 year CHF millions 1–5 years CHF millions Over 5 years CHF millions Total CHF millions 31 December 2021 Guarantees issued in favour of third parties 131.4 17.6 107.3 256.3 Irrevocable commitments 71.9 150.1 3.8 225.8 Total 203.3 167.7 111.1 482.1 31 December 2020 Guarantees issued in favour of third parties 207.4 43.1 80.7 331.2 Irrevocable commitments 190.3 175.4 9.8 375.5 Total 397.7 218.5 90.5 706.7 The comparative information has been changed. The financial guarantees maturities are based on the earliest contractual maturity date. The irrevocable commitments maturities are based on the dates on which loan commitments made to customers will cease to exist. 60. Securities repurchase and reverse purchase agreements Accounting principle Repurchase and reverse-repurchase agreements are treated as secured financing agreements. The transfer of securities in the case of repurchase and reverse-repurchase agreements is not recorded in the balance sheet since the risks and rewards of ownership of the securities are not transferred. In reverse-repurchase agreements, cash collateral provided and in repurchase agreements, the cash collateral received is stated on the balance sheet. Interest income from reverse-repurchase agreements and interest expense from repurchase agreements are accrued in the period in which they are incurred. 31 December 2021 CHF millions 31 December 2020 CHF millions Book value of receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase transactions 305.0 317.6 Book value of securities lent in connection with securities lending or delivered as collateral in connection with securities borrowing as well as securities in own portfolio transferred in connection with repurchase agreements 2,510.1 1,552.6 with unrestricted right to resell or pledge 2,510.1 1,552.6 Fair value of securities received and serving as collateral in connection with securities lending or securities borrowed in connection with securities borrowing, as well as securities received in connection with reverse repurchase agreements with an unrestricted right to resell or repledge 2,914.8 1,970.1 of which repledged securities 2,533.0 1,768.4 Amounts paid or received in cash are booked under the balance sheet item ‘Due from other banks’ or ‘Due to other banks’. 61. Fiduciary transactions Accounting principle Where the Group acts in a fiduciary capacity, such as nominee, trustee or agent, assets and income arising on fiduciary activities, together with related undertakings to return such assets to customers, are excluded from the financial statements. 31 December 2021 CHF millions 31 December 2020 CHF millions Fiduciary transactions with third-party banks 809.9 897.3 Total 809.9 897.3 62. Analysis of Swiss and foreign assets, liabilities and shareholders’ equity Swiss CHF millions Foreign CHF millions Total CHF millions 31 December 2021 Total assets 13,292.4 28,850.6 42,143.0 Total liabilities (5,828.6) (34,022.9) (39,851.5) Total shareholders’ equity 7,112.8 (5,214.9) 1,897.9 Additional equity components 351.0 – 351.0 Non-controlling interests 42.6 42.6 Total equity 7,463.8 (5,172.3) 2,291.5 Total equity and liabilities 13,292.4 28,850.6 42,143.0 Swiss CHF millions Foreign CHF millions Total CHF millions 31 December 2020 Total assets 11,465.6 29,171.6 40,637.2 Total liabilities (6,883.4) (31,995.8) (38,879.2) Total shareholders’ equity 4,582.2 (2,881.0) 1,701.2 Non-controlling interests 56.8 56.8 Total equity 4,582.2 (2,824.2) 1,758.0 Total equity and liabilities 11,465.6 29,171.6 40,637.2 63. Employee equity incentive plans The EFG International Employee Equity Incentive Plan (the ‘Plan’) has different classes of options and restricted stock units, which are equity settled and have a vesting period of one, two and three years. The different classes have earliest exercise dates varying from three to five years from the grant date and ending seven years from the grant date. The expense recorded in the income statement spreads the cost of the grants equally over the vesting period. Assumptions are made concerning the forfeiture rate which is adjusted during the vesting period so that at the end of the vesting period there is only a charge for vested amounts. Total expense related to the Plan in the income statement for the period ended 31 December2021 was CHF 26.8 million (2020: CHF 18.4 million). The Plan has been developed internally by the Group without the use of external consultants, although a service contract with an external company exists for the administration of the scheme. The following table summarises the outstanding options and restricted stock units at 31 December2021 which, when exercised, will each result in the issuance of one ordinary share: 31 December 2021 31 December 2020 At 01 January 18,527,877 18,328,213 Granted – Restricted stock units 5,046,637 6,453,264 Granted – Long term incentive plan units 831,888 244,443 Lapsed (991,665) (1,207,171) Exercised (4,567,405) (5,290,872) At 31 December 18,847,332 18,527,877 63.1 63.2 2021 incentive plan EFG International granted 5,046,637 (2020: 6,453,264) restricted stock units in the year. There are two classes of restricted stock units as follows: – With a 3-year lock-up restriction (‘Restricted stock units with 3-year lock-up’), – With no lock-up condition attached (‘Restricted stock units with 1/3 exercisable annually’). Both of the classes vest 1/3 every year over the next three years. All restricted stock units have no exercise price. In addition, the Group has granted 831,888 (2020: 244,443) long-term incentive plan units, which have a vesting period of three, four and five years. The different classes have earliest exercise dates varying from three to five years from the grant date and ending seven years from the grant date. The long-term incentive plan is not amortised as it is highly probable that the plan will not be exercisable. The deemed value of each restricted stock unit granted in 2021 is CHF 7.23 for the one vesting in 12 month, CHF 6.85 for the one vesting in 24 month and CHF 6.44 for the one vesting in 36 month. The values of the restricted stock units were determined using a model which considers the present value of the expected dividends during the period between the grant date and the earliest exercise date. The significant inputs into the model were the spot share price (CHF 7.58), market consensus discount pay-out and the expected life of the restricted stock units (12 to 36 months). 63.3 2022 incentive plan In 2022 and going forward, shares will be delivered instead of RSUs. EFG International will grant shares in June 2022 at prices to be determined based on the relevant valuation inputs on the date of issue. 64. Related party transactions Accounting principle Related parties include associates, fellow subsidiaries, directors and key members of the management, their close families, companies owned or controlled by them and companies whose financial and operating policies they can influence. Transactions of similar nature are disclosed on an aggregate basis. Significant shareholders CHF millions EFG Group CHF millions Key management personnel CHF millions 31 December 2021 Assets Derivatives 1.2 1.2 Loans and advances to customers 11.0 Other assets 14.0 0.1 Liabilities Due to other banks 16.4 16.4 Derivatives 0.1 0.1 Due to customers 74.8 5.7 3.3 Other liabilities 1.5 0.1 Year ended 31 December 2021 Interest income 0.2 Commission income 6.1 0.8 0.5 Commission expense (2.0) (0.5) Net other income 8.1 1.1 Operating expenses (1.7) (0.2) Significant shareholders CHF millions EFG Group CHF millions Key management personnel CHF millions 31 December 2020 Assets Derivatives 2.6 2.6 Loans and advances to customers 10.8 Other assets 8.9 0.1 Liabilities Due to other banks 4.2 4.2 Due to customers 92.8 2.5 2.2 Other liabilities 2.9 0.2 Year ended 31 December 2020 Interest income 0.1 Commission income 3.4 0.9 Commission expense (0.1) (0.3) Net other income 27.5 1.0 Operating expenses (22.6) (0.3) Comparative information has been adjusted. A number of banking transactions are entered into with related parties. These include loans, deposits, derivative transactions and provision of services. The amounts ‘Due from other banks’ reflect cash deposits, which like other third-party amounts classified as due from other banks are unsecured. No provisions have been recognised in respect of loans granted to related parties (2020: nil). 65. Key management compensation 31 December 2021 CHF 31 December 2020 CHF Executive Committee and Board of Directors Cash compensation 9,343,873 9,359,221 Pension contributions 550,525 581,515 Other compensation and social charges 1,313,907 771,983 Restricted stock units 5,114,000 1,980,833 Total 16,322,305 12,693,552 Cash compensation includes fixed and variable cash compensation. On an annual basis, the Group prepares a compensation report which includes description of the key management compensation. 66. Assets under Management and Assets under Administration 31 December 2021 CHF millions 31 December 2020 CHF millions Character of client assets Equities 61,879 51,410 Deposits 34,628 33,609 Bonds 33,653 35,088 Loans 19,633 19,424 Structured notes 5,606 4,194 Hedge funds/Fund of hedge funds 3,277 2,734 Fiduciary deposits 804 886 Other 12,479 11,422 Total Revenue-Generating Assets under Management 171,959 158,767 Total Assets under Administration 32,536 21,539 Total Assets under Management and Administration 204,495 180,306 Assets under Administration are trust assets administered by the Group. The Group has CHF 10,955 million (2020: 9,483 million) of Assets under Custody not included in the above. The Group calculates Total Revenue-Generating Assets under Management (AUM) as the total market value of the assets and liabilities that the Group manages on behalf of clients. AUM include all assets and liabilities managed by or deposited with the Group on which the Group earns revenue. Assets under Custody excluded from AUM are assets deposited with the Group held solely for safekeeping/custody purposes, and for which the Group does not offer advice on how the assets should be invested. AUM includes lombard loans and mortgages, though does not include the real estate that is security for the mortgage. When AUM is subject to more than one level of asset management services, double counting arises within the total AUM. Each such separate discretionary or advisory service provides additional benefits to the respective client and generates additional revenue to the Group. Double counts primarily include the self-managed collective investment schemes and structured products issued by Group companies which are also included in customer portfolios and already included in AUM. 31 December 2021 CHF millions 31 December 2020 CHF millions Assets under Management Character of Assets under Management: Assets in own administrated collective investment schemes 15,424 13,497 Assets under discretionary management agreements 28,829 26,705 Other assets under management 108,073 99,142 Total Assets under Management (including double counts) 152,326 139,344 Thereof double counts 7,154 5,348 Loans 19,633 19,423 Total Assets under Administration 32,536 21,539 Total Assets under Management and Administration 204,495 180,306 Net new asset inflows (including double counts) 8,751 8,417     31 December 2021 CHF millions 31 December 2020 CHF millions At 01 January 139,344 134,039 Net new money inflows 7,952 6,878 Market performance and currency impact 9,186 (310) Decrease due to disposals of businesses and subsidiaries (3,257) Other effects (899) (1,263) At 31 December 152,326 139,344 Net new money consists of new client acquisition, client departures and inflows or outflows attributable to existing clients (whether in cash or securities). Interest and dividend income from Assets under Management, market or currency movements as well as fees and commissions are not included in net new assets. Effects resulting from any acquisition or disposal of Group companies or businesses are not included in net new money. 67. Events occurring after the reporting period On 18 February 2022, the Group gave notice to the holders of its 5.0% resettable guaranteed subordinated notes due 2027 (ISIN: XS1591573180) and of which USD 197,909,000 in principal amount remain outstanding, that it will exercise its option to redeem these notes on their first optional call date on 05 April 2022. In addition, the Group gave notice regarding the EFG Fiduciary Certificates (ISIN: XS0204324890), of which EUR 13,382,000 in principal remain outstanding, that it intends to repurchase on the next dividend payment date on 03 May 2022 all outstanding certificates. 68. Swiss banking law requirements The Group is subject to consolidated supervision by Swiss Financial Markets Supervisory Authority. The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS). Set out below are the deviations which would result if the provisions of the Banking Ordinance and the Guidelines of Swiss Financial Markets Supervisory Authority governing financial statement reporting, pursuant to Article 23 through Article 27 of Banking Federal Ordinance, were applied in the preparation of the consolidated financial statements of the Group. (a) Financial investments Under IFRS, changes in the fair value of financial assets at fair value through other comprehensive income are recorded as increases or decreases to shareholders’ equity (refer to consolidated statement of other comprehensive income) until an investment is sold, collected or otherwise disposed of, or until an investment is determined to be impaired. On disposal of a debt financial instrument at fair value through other comprehensive income, the difference between the net disposal proceeds and carrying amount, including any previously recognised unrealised gain or loss arising from a change in fair value reported in other comprehensive income, is included in the income statement for the period. Under Swiss law, financial investments are carried at the lower of cost or market value. Positive and negative balance of market-related and/or credit-worthiness-related value adjustments to financial investments valued according to the lower of cost or market value principle are included in the income statement as sundry ordinary income and sundry ordinary expenses, respectively. Gains or losses on disposals are recognised in the income statement as income from the sale of financial investments. (b) Fair value option Even if an instrument meets the requirements to be measured at amortised cost or fair value through other comprehensive income, IFRS 9 contains an option to designate, at initial recognition, a financial asset as measured at fair value through profit and loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities (or recognising the gains and losses on them) on different bases. Under Swiss law, this option is not available. Only the financial assets held for trading are reflected on the balance sheet at fair value. Hybrid instruments are bifurcated: the embedded derivative is marked to market through net trading income and the host contract is accounted for on an accrued cost basis. No own credit adjustments are booked for hybrid instruments. Generally, loans are accounted for at amortised cost less impairment, loan commitments stay off-balance sheet and fund investments are accounted for as financial investments. (c) Derivative financial instruments Under IFRS 9, derivatives are recorded in the balance sheet at fair value with changes in fair value being recognised in fair value gains less losses on financial instruments measured at fair value. Under Swiss law, the Group’s derivative instruments are recorded on balance sheet at their market values (gross positive and negative replacement values). Replacement values are reported on a net basis provided the netting agreements are legally enforceable. Hedging transactions are valued using the same principles as those for the underlying transactions being hedged. (d) Goodwill and intangible assets Under both IFRS and under Swiss law, goodwill and intangible assets resulting from acquisitions and mergers are capitalised in the balance sheet. Under IFRS, goodwill is not amortised but is tested for impairment at least annually and is carried at cost less accumulated impairment losses. Intangible assets are amortised on a systematic basis over their useful lives. In addition, intangible assets are tested for impairment when there is any indication that the asset may be impaired. Intangible assets are carried at cost less amortisation and accumulated impairment losses. Under Swiss law, goodwill and intangible assets are amortised over the estimated economic life on a straight-line basis. The net carrying value of intangible assets is, in addition, reappraised annually, with any reduction to the net carrying value taken immediately as an expense in the income statement. (e) Extraordinary income and expense Under IFRS, items of income and expense shall not be classified as extraordinary items in the income statement or the separate income statement (if presented), or in the notes. Under Swiss law, income and expense items related to other accounting periods, as long as they are attributable to corrections or mistakes from previous periods, and/or not directly related with the core business activities of the enterprise (realised gains on sale of investments in associated undertakings or property, plant and equipment), are recorded as extraordinary income or expense. (f) Discontinued operations Under IFRS, assets and liabilities of an entity held for sale are separated from the ordinary balance sheet positions and reported in separate discontinued operations items. In addition, such assets and liabilities are remeasured at the lower of their carrying value or fair value less costs to sell. Under Swiss law, these positions remain in the ordinary balance sheet positions until disposal and are not remeasured. (g) Retirement benefit obligations Under IFRS and the specific rules of IAS 19R, the Group records an asset or liability for the Swiss pension funds as if they were defined benefit schemes. Under Swiss law, the funds are classified as defined contribution schemes and the Group’s liability for a fully funded pension fund is limited, and as a result no asset or liability exists for any amounts other than prepaid or unpaid employers’ contributions. (h) Lease accounting Under IFRS, the Group records a right-of-use asset and a lease liability in the balance sheet for leases. The right-of-use asset is then amortised over the period of the lease. Under Swiss law, lease expenses are charged to income statement on a straight-line basis over the life of the lease. (i) Additional Tier 1 notes Under IFRS, the Group considers the perpetual unsecured, deeply subordinated notes as additional equity components. The notes are recognised in the balance sheet at the net of the proceeds received less any issuance fees paid in the additional equity components reserve. Distributions to the holders of the notes are directly deducted from retained earnings when paid. Under Swiss Law, the perpetual unsecured, deeply subordinated notes are considered as a liability. Distributions to the holders of the notes are accrued through the income statement and issuance fees are amortised over the period until the first optional call date.