The LBMA Programme plays a fundamental role in providing trust and confidence in the global precious metals market. All Good Delivery List (GDL) refiners must comply with the Responsible Sourcing requirements, or risk losing their GDL accreditation.

In 2020, LBMA identified five focus areas, which underpin the priorities for the Programme:

  1. Value Chain Accountability: Building leverage to eliminate gold laundering
  2. Advancing standards: Defining best practice
  3. Transparency: Mandatory Disclosure Guidance
  4. Audit programme: Auditor Training
  5. Artisanal and Small-Scale Mining (ASM): Engaging responsibly

These five focus areas outlined in more detail below are important to help build long-term trust and credibility in the industry globally. While the Programme has achieved significant milestones over the last nine years, LBMA recognises that more remains to be done.

1 Value Chain Accountability: Building leverage to eliminate gold laundering

A global effort among all the value chain actors, national authorities, and law and enforcement agencies is required to continue addressing the outstanding challenges and risks.

There are limitations to any audit programme. While LBMA can effectively remove a refiner from the Good Delivery List (GDL) for Responsible Sourcing failures, unauthorised material may still potentially find its way into the Good Delivery system. See Section 14 on Residual Risks. To address these limitations, LBMA published the International Bullion Centres (IBCs) Recommendations, which support the OECD Due Diligence Guidance framework and also respond to key findings from the Financial Action Task Force (FATF).

Given the reliance by the international market on the GDL, LBMA is well placed to collaborate and engage with IBCs, to advance standards that ultimately aim to address the integrity of the precious metals market. The breadth of the activities undertaken within IBCs and the involvement of international counterparties mean that IBCs can be vulnerable to Responsible Sourcing risks.

In November 2020, LBMA wrote to 12 major IBCs* with recommendations to encourage consistency in Responsible Sourcing standards across these major trading hubs. Each recommendation supports LBMA’s overarching objectives of integrity, trust and confidence.

The IBCs operate important market infrastructure for bullion trading activities. This includes trading exchanges; storage facilities; processing, recycling and refining facilities; international and domestic logistics facilities; domestic consumption; and regulatory oversight. Responsible Sourcing vulnerabilities in IBCs can and will cause a negative impact for the financial institutions, refiners, investors, mints, and jewellery and electronic companies who rely on the integrity of the bullion market.

The IBC Recommendations focus on three strategic priorities:

  1. the Responsible Sourcing of recycled gold,
  2. the elimination of cash transactions and
  3. the provision of support for ASM.

In order to address these strategic priorities as a global industry, LBMA urges IBCs to implement the following five key recommendations:

  1. Effective scrutiny and verification of local and regional supply chains: IBCs must have visibility of local and regional supply chains, in particular on recycled bullion to ensure its legitimacy.
  2. Effective regulation of local and regional supply chains: IBCs must implement stringent rules governing local and regional bullion activities.
  3. Effective enforcement powers: IBCs must be appropriately empowered in order to apply any regulations.
  4. Effective co-operation with local, regional and international organisations.
  5. Develop ASM-specific guidance to support and further legitimise ASM supply.

LBMA believes these recommendations must be implemented and enforced to ensure a globally responsible supply chain. If an IBC fails to meet the recommendations, GDL refiners and other parties throughout the supply chain could be discouraged from engaging with that Centre. While LBMA encourages responsible engagement, the failure of IBCs to adopt these recommendations may bring the legitimate global supply chain into disrepute.

Over the course of 2021, LBMA undertook bilateral outreach with all the IBCs. An initiative of this magnitude requires extensive collaboration between many actors and will take time to achieve its objectives. Since sending the initial letter, all 12* IBCs have been supportive of LBMA’s initiative and are proactively developing their own individual agendas to support the development of Responsible Sourcing practices. In addition, the OECD engaged directly with all 12 centres, starting with a meeting in May 2021, to further the countries’ work on implementing the Due Diligence guidance.

Furthermore, LBMA, together with an external consultant, is developing a methodology to help review the Responsible Sourcing progress in each IBC. This will help LBMA engage in constructive dialogue with each centre in 2022. Each country report will be used to engage with the IBCs on next steps and to help identify any relevant gaps.

* China, Hong Kong SAR, India, Japan, Russia, Singapore, South Africa, Switzerland, Turkey, UAE, UK and USA.