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LBMA Board Effectiveness Review Executive Summary
Overview
Taken from the 2021 independent Board Effectiveness Review conducted by Brian Larkman:
In 2017, the LBMA Board agreed to undertake a self-assessment evaluation of its composition and governance arrangements, facilitated by an independent consultant who had extensive experience of governance arrangements in different organisations, but no prior knowledge of the LBMA or the precious metals markets. This Evaluation took the form of a written survey of the views of current Board members, senior managers, and external observers, supported by structured telephone interviews with each of the respondents and an examination of relevant policy documentation. The review made a total of 15 recommendations and results were discussed by the Board at its meeting on 17 May 2018.
In March 2021, the Board asked the same independent consultant to follow up on the 2018 exercise to examine the extent to which the recommendations had been implemented effectively and to undertake an evaluation of the progress that had been made by the LBMA in certain areas during 2018 - 2021. These areas included the implementation of the 3-year Strategic Plan adopted by the Board in 2018 and the extent to which the structures, policies, and procedures within the LBMA have been effective.
This update review confirms that good progress has been made over the last 3 years and the LBMA Board and Executive have performed well, both in terms of advancing their own programme and in responding to significant external challenges which could not have been foreseen by any conventional risk assessment process. The steps taken have strengthened the position of the association in the marketplace and should give it confidence to play a strong leadership role going forward.
At the same time, the review highlights the relatively small size of the organisation and the reliance that is placed on a few key individuals. Given the limited resources available to it, there is still scope to streamline operating practices further and a need to ensure that the role of the association is clearly defined. The membership survey being undertaken should provide useful feedback to inform the forthcoming planning discussions, but care will have to be taken to ensure that ambitions are clearly focussed and matched to the resources available to deliver them.
Most encouragingly, the update review has shown that the LBMA can be properly described as a ‘learning’ institution in that it is continually seeking to improve its performance considering experience gained. If this philosophy can be combined with clear strategic thinking over the forthcoming planning cycle, its future looks bright.
Key Recommendations
Key Recommendation 1: Further thought should be given to optimising the way in which the Sub-Committee and Working Group structure works to minimise duplication of effort and ease executive workload.
Key Recommendation 2: Working relationships between the Board and the Sub-Committees should be developed further to improve the understanding each group has of the work of the other.
Key Recommendation 3: Meeting agendas should be adapted as necessary to ensure that discussions follow the programme set out in the Annual Rolling Plan and that all important topics receive attention.
Key Recommendation 4: The assessment of key risks should have a high profile in the strategic planning process.
Overall, the review concluded that most of the key recommendations have been addressed and these have tightened the governance process, improved the flow of information, and enhanced the reputation of the association in the eyes of its members and the wider market. A third high quality non-executive director has been appointed and a sound policy implemented for handling potential conflicts of interest. Alongside these achievements, a real effort has been made to improve lines of communication between the Board and its sub-committees. The Board remains well led and clearly focussed on furthering the aims and reputation of the association. The review highlighted the resulting reliance on the knowledge and expertise of a relatively small number of key individuals carrying a heavy workload.
To create operational efficiencies, recommendations included further optimising the way in which the SubCommittee and Working Group structure operates and developing the working relationship between the Board and the Sub-Committees to improve understanding. The review also recommended adapting Board meeting agendas as necessary to allocate sufficient time for discussion of important topics and ensuring key risks are a priority in the strategic planning process.
Key Recommendation 5: A careful review of the Gold Bar Integrity project should be undertaken to reconfirm the value of the benefits expected from it and set these against the costs and complexity of implementation to establish a universally agreed way forward.
Key Recommendation 6: The 2022-4 Strategic Plan should endeavour to focus on a smaller number of projects than the current plan.
Key Recommendation 7: Quantifiable measures of success and clear timetables for completion should be assigned to each objective set.
Key Recommendation 8: Careful attention should be paid to prioritising the findings that will emerge from the membership survey that is currently being undertaken to ensure that all planned outcomes are fully deliverable.
The Strategic Plan adopted in 2018 served the LBMA well, guiding the association through a challenging period and reinforcing its position as the guardian of standards in the precious metals market. One or two objectives have proved quite difficult to achieve with unforeseen events over the last 18 months creating additional challenges. Responses showed a high level of satisfaction with the progress being made.
Recommendations for the next Strategic plan include a careful review of the Gold Bar Integrity project to reconfirm the value of the benefits expected from it and confirm a way forward without delay. The review also recommends creating operational efficiencies by reducing the number and range of issues focused on moving forward, prioritising proposals taking into account membership survey feedback, and ensuring objectives include quantifiable measures of success and clear timetables for completion.
Key recommendation 9: Another opportunity should be sought to review the current GDL Rules with a view to strengthening the legal framework within which the Incident Review Process is conducted in to minimise the threat of adverse litigation.
The evidence that emerges from this survey indicates that the structures, policies, and procedures now in force are proving effective in dealing with suspected breaches of the LBMA’s rules and standards that emerge.
The review recommends the Board to seek another opportunity to review the current GDL Rules with a view to strengthening the legal framework within which the Incident Review Process is conducted in order to increase the level of protection against litigation.
Brian Larkman
31 August 2021
Brian Larkman is a retired bank treasury manager. Having held a number of senior positions in the NatWest Group, he was appointed Global Head of Money Markets for the RBS Group before retiring in 2001. While in office he chaired the BBA Money Markets Committee and worked closely with APACS and the Bank of England on the introduction of Real Time Gross Settlement in CHAPS, the City of London’s high value payment system.
In 2002 he was appointed to the Regulatory Decisions Committee of the FSA and two years later he became a non-executive director of the UK Debt Management Office, a position that he held for 12 years. During this time he also acted as an adviser to HMRC and as a member of the Exchequer Funds Audit Committee of HM Treasury. In 2012 he was appointed MBE in recognition of his services to the financial services industry and the UK Debt Management Office.
LBMA Response to the 2021 Board Effectiveness Review
All Members of the Board found the process conducted by Brian Larkman to be beneficial to their own engagement and to the work of the Board. The constructive feedback was welcomed and has greatly assisted the Board in the continuing development of the LBMA.In response to the Key Recommendations summarised above, the Board accepts these and has developed a delivery plan to act upon them. The overall recommendations strongly correspond to the strategic ambitions of the LBMA. The Board is currently in the process of developing and finalising its Three-Year Strategic Plan which will be shared with the Membership later in the year. This has followed dedicated Executive Committee and Board sessions focused on strategy, aligned to the Review’s recommendations.
Review of Sub-Committees and Working Groups with meeting agendas adapted to the Annual Rolling Plan and important topics (Addressing key recommendations 1-3)
The Board is in the process of developing an annual review process for its Sub-Committees and Working Groups. It is envisaged that the review will create operational efficiencies and improve the working relationships between the Board, Sub-Committees and Working Groups. The aim of this review is to ensure there is the appropriate level of oversight in the most efficient way possible, but also to maintain Member and market engagement in the work of the LBMA. Ahead of 2022, Annual Rolling plans will be reviewed for all structures to ensure the relevant and high-priority items are reviewed at each Meeting.
The assessment of key risks should have a high profile in the strategic planning process (Addressing key recommendation 4)
The Board & LBMA Executive will be having a workshop in early 2022 to identify key risks. During the workshops, the risks will be discussed, quantified, and addressed with the relevant mitigants identified. To ensure the risks remain high-profile, action plans will be determined. These will be presented and tracked at future Board meetings with minutes available on the LBMA website for transparency.
Review of Gold Bar Integrity Initiative (Addressing key recommendation 5)
LBMA and WGC have formed a working group to re-assess and progress the Gold Bar Integrity Initiative with buy-in and feedback from industry stakeholders to ensure the project is a success and is beneficial to the market. Workshops have taken place with service providers & market stakeholders to better understand requirements and next steps have been agreed, including a design study for the digital database in 2022, to ensure the project continues to progress.
2022-24 Strategic plan: focus on a smaller number of projects with quantifiable measures of success and clear timetables for completion (Addressing key recommendations 6 & 7)
LBMA is in the process of finalising and communicating its next 3-Year Strategic Plan (2022-24). The strategy has shifted to focus on the four key pillars of LBMA: Responsible Sourcing, Physical Market Enhancements, Financial Market Enhancements and Communications & Engagement. There will be no more than 7 key priorities for each pillar, with clear measures of success and timelines, to ensure that these can be tracked through to completion. The 3-Year strategy will be clearly communicated to LBMA Members so they can provide feedback as well as for information.
Prioritising findings from Members Survey to ensure planned outcomes are fully deliverable (Addressing key recommendation 8)
Prescient, the consultants co-ordinating and owning the Members Survey, will present their findings to members of the LBMA Executive. From there, feedback will be shared with each relevant department, via Leadership. Each department concerned will draw up an implementation plan with clear objectives and a time-plan, agreed by the Chief Executive. Leadership will be expected to show progress reports towards their department objectives at each ExCom meeting. The results will also be discussed by the Board and reflected in the strategy. Key highlights from the Survey were included in the 2021 Annual Report and further results from the survey will be published in 2022.
Review of GDL Rules & enhancing legal framework (Addressing key recommendation 9)
The LBMA recently conducted an extensive review of the Good Delivery List Rules and Membership Rules. The new Rulebooks strengthened the legal framework supporting the LBMA’s accreditation processes. This included clarity around rules for Good Delivery List refiners, given by the LBMA. An annual review process of the rules has been implemented to ensure the framework continues to be robust and provide the appropriate level of protection against litigation, in conjunction with the Physical Committee, Refiner’s Committee and other stakeholders.
LBMA Board
Independent Non-Executive Directors:
Dr. Paul Fisher (Chairman)
Andrew Quinn
Isabelle Strauss-Kahn
The biographies for all Board members can be found on the LBMA website.
Executive Directors:
Ms Ruth Crowell, Chief Executive Officer, LBMA
Ms Sakhila Mirza, General Counsel, LBMA
Elected Market Making Member Representatives:
Mr Raj Kumar (Vice Chairman), Managing Director, ICBC Standard Bank Plc
Mr Fang Wenjian, Chief executive Officer, Bank of China (UK) Limited
Mr Paul Voller, Managing Director, HSBC
Elected Full Member Representatives:
Mr. Davide Collini, BNP Paribas
Mr. Mehdi Bardhordar, Chairman of the Board of Directors, MMTC-PAMP India
Mr. Hitoshi Kosai, Chief, International Planning Office, Tanaka Kikinzoku Kogyo KK and Tanaka
Holdings Co Ltd.