The London vaults provide secure locations for bullion traded on the market. They also provide an important role as gatekeepers, ensuring that new bars to the London market meet the LBMA minimum standards of quality and physical appearance.
The clearing members each maintain confidential and secure vaulting facilities, within central London locations, either at their own premises or those of a secure storage agent. These sites process and store precious metals for the member and those clients of theirs requiring custodial storage.
Whenever bullion is delivered or moved, there are close ties between the vault operations and the precious metal trading and sales team. This is particularly so in key Government or Central Bank physical transactions, which require sensitive and confidential handling and high security precautions. It is this facilitation of the physical movement of precious metals that enables location and quality swaps and provides the basis for liquidity management.
There are seven custodians offering vaulting services in the London bullion market, three of whom are also clearing members of the LBMA (Barclays, HSBC and JP Morgan). There are also four other security carriers, who are also LBMA members (Brinks, G4S Cash Solutions (UK), Malca Amit and Loomis International (UK) Ltd). The Bank of England also offers a custodian service (gold only). In total it is estimated that there are approximately 6,500 tonnes of gold held in London vaults, of which about three quarters is stored in the Bank of England. Those clearing members without their own vault operations - Scotiabank and UBS - will utilise their accounts with the Bank of England or one of the other custodians. For a full list of custodians, including contact details, offering vaulting service please refer to the list in the Useful links toolbar.
In addition to providing custodian services, the clearing members - Barclays, HSBC and JP Morgan - also physically check and weigh all of the bars that are new to the London market, ensuring they meet the LBMA's strict Good Delivery standards. Those meeting the standards will be accepted and can be traded and moved within the London bullion market, those that don't are rejected. This gatekeeper role maintains the quality of bullion traded in London and its pre-eminence in the global market.
A company that wishes to open a vault for the storage of precious metals may wish to first become a member of the London Bullion Market Association (LBMA). In order to join the LBMA a company must be involved in activities closely related to the London market in gold or silver bullion. (See Joining the LBMA for further details). Contrary to popular belief, the LBMA does not approve or accredit new vaults. However, with the assistance of the existing London vaults the LBMA has complied some Best Practice Guidelines for opening a new vault for the storage of precious metals. In addition, Best Practice Guidelines for the safe packing, transportation and storage of gold and silver bars has been produced. Both of these Best Practice Guides can be downloaded via the Useful Links section on the right hand side of this page.
The role of the Bank of England
The Bank of England is represented on both the LBMA's Management Committee and Physical Committee and also plays an important role in the London gold market. Although the Bank isn't a member of the LBMA, members of the LBMA hold gold custody accounts with the Bank. Reputedly it is the second largest vault in the world with approximately 500,000 gold bars held in safe custody on behalf of its customers, including LBMA members, central banks, international financial institutions and Her Majesty's Treasury.
The Bank of England has been intrinsically linked with the London bullion market since its foundation in 1694.
The Bank provides a custody service for gold to its customers on an allocated basis, which means customers holding gold at the Bank have title to specific bars. The Bank's vaults hold approximately two thirds of all the gold held in London vaults and as such plays a significant role in the liquidity within the London gold market. Customers are able to buy or sell gold to other customers, by making or receiving book entry transfers, with ownership transferred in the Bank's back office system. This is advantageous because it avoids the need for the bars to be physically moved. The service provides a very important element of the gold market infrastructure in London, helping LBMA members and central banks to trade in a secure and efficient way.