EFG International : Pillar III Disclosures

Basel III

Pillar 3 Disclosures

EFG International AG

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Contents

1.	Introduction	4
1.1	Background	4
1.2	Objective	4
1.3	Scope	4
1.4	Basis of preparation	4
1.5	Internal control system	4
1.6	Accounting principles	4
2.	Capital adequacy and liquidity	5
2.1	Key ratios	6
2.2	Composition of the regulatory eligible capital	8
3.	Risk weighted assets	9
3.1	Risk weighted assets	9
3.2	Framework for risk weighted assets calculation	10
4.	Risk management	11
4.1	Risk governance	11
4.1.1	Approach to risk management	11
4.1.2	Risk culture, core values and ethical standards	12
4.1.3	Three lines of defence model	12
4.1.4	Risk capacity	13
4.1.5	Risk appetite statement	13
4.1.6	Risk appetite metrics	14
4.1.7	Limits framework	14
4.1.8	Cascading process	14
4.2	Risk management - measurement approach	17
5.	Credit Risk	18
5.1	Credit quality of assets	21
5.2	Changes in stock of defaulted loans and debt securities	25
5.3	Overview of mitigation techniques	26
5.4	Exposure and credit risk mitigation effects under the standardised approach	27
5.5	Exposures by exposure category and risk weights under the standardised approach	28
5.6	Counterparty credit risk	29
5.7	Counterparty credit risk: Analysis of counterparty credit risk exposure by approach	31
5.8	Credit valuation adjustment	32
5.9	Non counterparty-related risk	33
5.10	Counterparty credit risk: exposures to central counterparties	34
6.	Market Risk	35
6.1	Capital requirements under the standardised approach	37
7.	Interest rate risk in the banking book	38
7.1	Objectives and guidelines for the management of interest rate risk in the banking book	38
7.2	Quantitative information on the exposure's structure and repricing date	41
7.3	Quantitative information on economic value of equity and net interest income	43
8.	Operational Risk	43
9.	Liquidity risk management	46
9.1	Liquidity coverage ratio	48
9.2	Net stable funding ratio	49
10.	Comparison to IFRS basis	50
11.	Leverage ratio	51
12.	Appendices	52
12.1	Information on leverage ratio	52
12.2	Summary comparison of accounting assets versus leverage ratio exposure measure	53
12.3	Information on liquidity coverage ratio	54
12.4	Information on net stable funding ratio	55
12.5	Regulatory capital instruments	57
12.6	Detailed regulatory capital calculation	59
12.7	Detailed capital ratios	60

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12.8	Balance sheet	61
12.9	Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with
	regulatory risk categories	63
12.10	Composition of collaterals for counterparty credit risk exposure	64
12.11	Counterparty credit risk: Credit derivatives exposures	65
12.12	Geographical distribution of credit exposures used in the countercyclical capital buffer	65
13.	FINMA requirements table	66
14.	Abbreviations	68

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1. Introduction

1.1 Background

EFG International AG (the Group) is regulated by the Swiss Financial Market Supervisory Authority (FINMA) which requires the Group to comply with Pillar III disclosures that are part of the Basel III Capital Adequacy Framework.

This report discloses the Group's application of the Basel III framework as at 31 December 2021 and changes since 31 December 2020.

This document was approved for issue by senior management and Board of Directors on 22 February 2022.

1.2 Objective

The objective of this report is to provide information on risk management in the Group to investors, analysts, ratings agencies and supervisory bodies. In particular, it describes the Group's capital adequacy and liquidity position.

1.3 Scope

There is no difference in the scope of consolidation for the calculation of capital adequacy and the 2021 Consolidated Financial Statements prepared for this purpose (see section 1.6 Accounting principles).

No subsidiaries are proportionally consolidated.

As the Group operates various regulated banks in different countries, each of these countries have regulations limiting the transfer of regulatory capital (and in some instances cash balances) between jurisdictions.

As the parent entity of the Group, EFG International AG is a holding company, the parent entity is only regulated on a consolidated basis, hence no "single entity" reporting has been produced.

1.4 Basis of preparation

This document was prepared in accordance with the Pillar III disclosure requirements set forth under FINMA Circular 2016/1 "Disclosure - banks". Certain tables referred

to in this document are numbered as per the FINMA requirements.

In order to have the full view of the Group's regulatory environment and capital requirements, this report should be read in conjunction with the Group's Annual Report 2021 (http://www.efginternational.com).

1.5 Internal control system

The Group's internal control system (ICS) is an integrated Group-wide system covering all functions and all hierarchical levels. In addition to the Group's front-line activities, the internal control system also applies to business-support and monitoring functions. The Group works continually to foster a culture of oversight among its staff so that each employee understands his or her role in the ICS.

The Group carries out a periodic review of key risks and controls, with a particular focus on operational risks. The Group keeps detailed records of these risks and controls and identifies the main areas of potential improvement. It also prepares an annual assessment of its ICS for the financial accounts in order to meet the requirements of Swiss auditing standard No. 890.

1.6 Accounting principles

The Group complies with IFRS accounting principles which are used in the financial reporting presented in the Annual Report. The Group complies with Swiss accounting principles reporting (Accounting-banks ''Swiss ARB'' or "Swiss GAAP") for Capital Adequacy purposes on the same basis as its major subsidiary, EFG Bank AG. All figures within this report are prepared under the basis of Swiss GAAP, unless otherwise stated.

As at 31 December 2021, the main difference between IFRS and Swiss ARB accounting principles affecting the Group's capital adequacy positions relates to:

• pension accounting - pension asset of CHF 18.2 million (2020: pension liability of CHF 95.5 million)
• valuation of equity and debt instruments of
  CHF (123.1) million (2020: CHF 234.4 million) arising.

For further details of the reconciliation between IFRS and Swiss ARB, see Section 10 to this report.

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2. Capital adequacy and liquidity

The Group's objectives when managing regulatory capital and liquidity are to comply with the 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 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 according to the Swiss Capital Adequacy Ordinance (CAO, 952.03), therefore complying with the FINMA requirements.

Monitoring capital adequacy and liquidity is a key component of the Group's financial strategy. Management carefully considers the potential impact on the Group's capital ratios and liquidity ratio before making any major decisions about the Group's operations and the orientation of its business.

The Executive Committee monitors the capital ratios and liquidity ratio monthly for the Group, with Board oversight on a quarterly basis.

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