Significant Risk Transfer Transactions

Introduction

The recent decision by the Swiss Financial Market Supervisory Authority ("FINMA") to write off the Additional Tier 1 bonds ("AT1 bonds") issued by Credit Suisse in March 2023 highlighted the risks and uncertainties associated with this form of regulatory capital and placed the market under significant pressure. AT1 bonds are hybrid instruments that combine features of debt and equity, designed to absorb losses and recapitalise the issuer in times of stress. However, they also expose investors to the possibility of conversion into equity, coupon cancellation and, as in the case of Credit Suisse, principal write-down at the discretion of regulators such as FINMA or of the issuer, depending on the terms of the bonds.