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MD&A - Risk management and control
 12 Months Ended
Dec. 31, 2021
Entity [Table]  
Disclosure Of Financial Risk Management Explanatory
Audited |
Credit risk:
 
the risk of loss resulting from the failure of a client or counterparty
 
to meet its
contractual obligations toward UBS. This includes
 
settlement risk, loan underwriting risk and
 
step-in risk.
Settlement risk:
 
the risk of loss resulting from transactions that involve
 
exchange of value (e.g.,
security versus cash) where we must deliver without
 
first being able to determine with certainty
 
that
we will receive the countervalue.
Loan underwriting risk:
 
the risk of loss arising during the holding
 
period of financing transactions
that are intended for further distribution.
Step-in risk:
 
the risk that UBS may decide to provide financial
 
support to an unconsolidated entity
that is facing stress in the absence of, or in excess of,
 
any contractual obligations to provide such
support.
Audited |
Market risk
 
(traded and non-traded):
 
the risk of loss resulting from adverse movements
 
in
market variables. Market variables include observable
 
variables, such as interest rates, foreign exchange
rates, equity prices, credit spreads and commodity (including
 
precious metal) prices, as well as variables
that may be unobservable or only indirectly observable,
 
such as volatilities and correlations. Market risk
includes issuer risk and investment risk.
Issuer risk:
 
the risk of loss from changes in fair value resulting from
 
credit-related events affecting
an issuer to which we are exposed through tradable securities
 
or derivatives referencing the issuer.
Investment risk:
 
issuer risk associated with positions held
 
as financial investments.
Audited |
Liquidity risk:
 
the risk that the firm will not be able to
 
efficiently meet both expected and
unexpected current and forecast cash flows and collateral
 
needs without affecting either daily
operations or the financial condition of the
 
firm.
Audited |
Funding risk:
 
the risk that the firm will be unable, on
 
an ongoing basis, to borrow funds in
the market on an unsecured (or even secured) basis at
 
an acceptable price to fund actual or
proposed commitments; i.e., the risk that UBS’s funding
 
capacity is not sufficient to support the
firm’s current business and desired strategy.
Audited
 
|
The
 
Board
 
of
 
Directors
 
(the
 
BoD)
 
approves
 
the
 
risk
management and control framework of the Group, including the
Group
 
and
 
business
 
division
 
overall
 
risk
 
appetite.
 
The
 
BoD
 
is
supported
 
by
 
its
 
Risk
 
Committee,
 
which
 
monitors and
 
oversees
the
 
Group’s
 
risk
 
profile
 
and
 
the
 
implementation
 
of
 
the
 
risk
framework approved
 
by the BoD,
 
and approves
 
the Group’s risk
appetite methodology.
 
The Corporate Culture
 
and Responsibility
Committee (the CCRC) helps the BoD
 
meet its duty to safeguard
and
 
advance
 
UBS’s
 
reputation
 
for
 
responsible
 
and
 
sustainable
conduct,
 
reviewing
 
stakeholder
 
concerns
 
and
 
expectations
pertaining
 
to
 
UBS’s
 
societal
 
contribution
 
and
 
corporate
 
culture.
The
 
Audit
 
Committee
 
assists
 
the
 
BoD
 
with
 
its
 
oversight
 
duty
relating to financial
 
reporting and internal
 
controls over financial
reporting,
 
and
 
the
 
effectiveness
 
of
 
whistleblowing
 
procedures
and the external and internal audit functions.
The
Group
 
Executive Board
 
(the GEB) has overall responsibility
for establishing and
 
implementing a risk
 
management and control
framework in the Group,
 
managing the risk profile
 
of the Group
as a whole.
The
Group
 
Chief
 
Executive
 
Officer
 
has
 
responsibility
 
and
accountability
 
for the
 
management
 
and performance
 
of the
 
Group,
has risk authority over
 
transactions, positions and exposures, and
allocates
 
business
 
divisions
 
and
 
Group
 
Functions
 
risk
 
limits
approved by
 
the BoD.
The
business division Presidents
and
 
Group function heads
are
responsible for the
 
operation and management
 
of their business
divisions,
 
including
 
controlling the
 
dedicated
 
financial
 
resources
and risk appetite of the business division.
The
regional
 
Presidents
 
are
 
responsible
 
for
 
cross
-
divisional
collaboration in their
 
regions and
 
are mandated
 
to inform
 
the GEB
about
 
any
 
activities
 
/
 
issues
 
that
 
may
 
give
 
rise
 
to
 
actual
 
or
potentially material regulatory or reputational concerns.
The
Group Chief
 
Risk Officer
 
(the Group
 
CRO) is
 
responsible
for
 
developing
 
the
 
Group’s
 
risk
 
management
 
and
 
control
framework (including
 
risk principles
 
and risk
 
appetite) for
 
credit,
market,
 
country,
 
treasury,
 
model
 
and
 
sustainability
 
and
 
climate
risks. This
 
includes risk
 
measurement and
 
aggregation, portfolio
controls
 
and
 
risk reporting.
 
The
 
Group
 
CRO
 
sets
 
risk limits
 
and
approves credit and
 
market risk transactions
 
and exposures. Risk
Control is
 
also the
 
central function
 
for model
 
risk management
and control
 
for all
 
models used
 
in UBS.
 
A framework
 
of policies
and authorities support the risk control process.
The
Group
 
Chief
 
Compliance
 
and
 
Governance
 
Officer
 
is
responsible
 
for
 
developing
 
the
 
Group’s
 
operational
 
risk
framework,
 
which
 
sets
 
the
 
general
 
requirements
 
for
identification,
 
management,
 
assessment
 
and
 
mitigation
 
of
operational risk,
 
and for
 
ensuring that
 
all non-financial
 
risks are
identified, owned and managed according to the operational risk
appetite objectives, supported by an effective control framework.
The
Group
 
Chief
 
Financial
 
Officer
 
is
 
responsible
 
for
transparency in assessing the financial performance of the Group
and the
 
business divisions,
 
and for
 
managing the
 
Group’s financial
accounting,
 
controlling,
 
forecasting,
 
planning
 
and
 
reporting.
Additional responsibilities
 
include managing
 
UBS’s tax
 
affairs, as
well as treasury
 
and capital management,
 
including funding and
liquidity risk and UBS’s regulatory capital ratios.
 
The
Group
 
General Counsel
 
is
 
responsible for
 
managing the
Group’s legal
 
affairs (including litigation involving UBS),
 
ensuring
effective
 
and timely
 
assessment
 
of legal
 
matters
 
impacting
 
the
 
Group
or its
 
businesses,
 
and managing
 
and reporting
 
all litigation
 
matters.
The
Head of
 
Human Resources
 
is responsible for
 
independent
oversight
 
and challenge
 
of employment-related
 
risks.
Group
 
Internal
 
Audit
 
(GIA)
 
independently
 
assesses
 
the
effectiveness of processes to define
 
strategy and risk appetite
 
and
overall
 
adherence
 
to
 
the
 
approved
 
strategy.
 
It
 
also
 
assesses
 
the
effectiveness
 
of
 
governance
 
processes
 
and
 
risk
 
management,
including compliance with legal and regulatory requirements and
internal
 
governance
 
documents.
 
The
 
Head
 
GIA
 
reports
 
to
 
the
Chairman of the BoD.
 
GIA also has a
 
functional reporting line to
the BoD Audit Committee.
Some
 
of
 
these
 
roles
 
and
 
responsibilities
 
are
 
replicated
 
for
certain significant legal entities of the Group. The
legal entity risk
officers
 
are responsible for
 
independent oversight and
 
control of
financial
 
and
 
non-financial
 
risks
 
for
 
certain
 
significant
 
legal
entities of the
 
Group as part
 
of the
 
legal entity control
 
framework,
which
 
complements
 
the
 
Group’s
 
risk
 
management
 
and
 
control
framework.
Audited |
 
We apply
 
a variety
 
of methodologies
 
and measurements
to
 
quantify
 
the
 
risks
 
of
 
our
 
portfolios
 
and
 
potential
 
risk
concentrations. Risks
 
that are
 
not fully
 
reflected within
 
standard
measures
 
are
 
subject
 
to
 
additional
 
controls,
 
which
 
may
 
include
preapproval of specific transactions
 
and the application
 
of specific
restrictions.
 
Models
 
to
 
quantify
 
risk
 
are
 
generally
 
developed
 
by
dedicated
 
units
 
within
 
control
 
functions
 
and
 
are
 
subject
 
to
independent validation.
Audited
 
|
 
Risk
 
concentrations
 
may
 
exist
 
where
 
one
 
or
 
several
positions within or
 
across different
 
risk categories could
 
result in
significant
 
losses relative
 
to UBS’s
 
financial
 
strength.
 
Identifying
such risk concentrations
 
and assessing their
 
potential impact is a
critical component of our risk management and control process.
For financial risks, we consider a number
 
of elements, such as
shared
 
characteristics
 
of
 
positions, the
 
size
 
of
 
the portfolio
 
and
the
 
sensitivity
 
of
 
positions
 
to
 
changes
 
in
 
the
 
underlying
 
risk
factors.
 
Also
 
important
 
in our
 
assessment
 
is the
 
liquidity of
 
the
markets where the positions are traded, as well as the availability
and
 
effectiveness
 
of
 
hedges
 
or
 
other
 
potential
 
risk-mitigating
factors. This includes an assessment of the provider of
 
the hedge
and market liquidity where the hedge might be traded. Particular
attention is given
 
to identification of
 
wrong-way risk and
 
risk on
risk. Wrong-way risk
 
is defined as
 
a positive correlation
 
between
the size of
 
the exposure and the
 
likelihood of a
 
loss. Risk on
 
risk
is when a position and
 
its risk mitigation can be impacted
 
by the
same event.
For non-financial risks, risk concentrations may result from,
 
for
example,
 
a single
 
operational
 
risk issue
 
that is
 
large on
 
its
 
own
(i.e., has
 
the potential
 
to produce
 
a single
 
high-impact loss
 
or a
number
 
of
 
losses
 
that
 
together are
 
high
 
impact)
 
or
 
related
 
risk
issues that may link together to create a high impact.
Risk concentrations
 
are subject
 
to increased
 
oversight by
 
Group
Risk Control
 
and Group
 
Compliance, Regulatory
 
& Governance,
and
 
assessed
 
to
 
determine
 
whether
 
they
 
should
 
be
 
reduced
 
or
mitigated,
 
depending
 
on
 
the
 
available
 
means
 
to
 
do
 
so.
 
It
 
is
possible
 
that
 
material
 
losses
 
could
 
occur
 
on
 
financial
 
or
 
non-
financial
 
risks,
 
particularly
 
if
 
the
 
correlations
 
that
 
emerge
 
in
 
a
stressed environment differ
 
markedly from those
 
envisaged by risk
models.