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.

2 Advancing Standards: Defining best practice

Version 8 of the Responsible Gold Guidance (RGG), launched in 2018, marked a major strategic expansion to include Environmental, Social and Governance (ESG) issues. RGG Version 9 will be issued later in 2021 after undergoing a thorough public stakeholder consultation and will be applicable for GDL refiners beginning from 1 January 2022.

The main changes reflected in Version 9 include:

Recycled gold

RGG Version 9 provides further clarity on the due diligence expectations for recycled material, including what forms of paperwork are required to give assurance of origin and legality. It will be expected that the refiner’s assessment of the supplier should cover all precious metals activities carried out by the supplier rather than the refiner’s direct supply chains only.

The revision categorises types of recycled gold by the level of risk posed and provides additional due diligence and enhanced due diligence guidance per category. To address calls to extend due diligence beyond Tier 1 suppliers, RGG Version 9 stipulates the requirement for secondary refiners supplying recycled melted gold to LBMA Good Delivery refiners to undergo independent assurance on conformance with an OECD-approved Responsible Sourcing scheme.

The disclosure of disaggregated data in their confidential Country of Origin filings will provide LBMA with more accurate data with which to monitor and analyse market trends.

Each new iteration of the Responsible Gold Guidance is our commitment to continuous improvement. We look forward to implementing Version 9 of the RGG in January 2022, with the first audits against the new standard being received in 2023.

Elimination of cash transactions

RGG Version 9 is a first step toward prohibiting cash transactions except in jurisdictions with rigorous checks and balances or when dealing with ASM between mine site and national level aggregator only.

For transactions over $10,000 in value, refiners must make and receive payments for gold through official banking channels and should not undertake any cash-based transactions. Refiners may only make cash transactions with suppliers that have successfully passed an identity check.

Cash purchases of legitimate ASM gold may be permissible, as long as all transactions involving legitimate ASM gold are made through formal channels from the point of export in the country of production to any onward counterparty. This ASM practice and/or cash transaction below the stipulated threshold should be supported by verifiable information and approved by a refiner’s Compliance Officer.

Provision of support for responsible ASM

The guidance will continue to stipulate LBMA’s support for measures to create economic and development opportunities for ASM miners and assist legitimate ASM producers to build secure, transparent and verifiable gold supply chains from mine to market. The guidance has been updated to provide streamlined due diligence requirements for legitimate ASM supply chains.

Environmental, Social and Governance (ESG)

RGG Version 9 also builds on the ESG requirements that were first introduced in Version 8. It requires refiners to consider and report on adverse ESG factors in their gold supply chain. While LBMA acknowledges the inclusion of ESG to be a significant step change for refiners, LBMA’s vision is to deploy a graduated programme of implementation for this important aspect of precious metals due diligence.

Risk mitigation requirements

RGG Version 9 clarifies the risk mitigation strategies to be taken by LBMA refiners and completes the alignment with the OECD due diligence guidance.

Auditor independence and audit quality

Refiners will be required to rotate auditors every ten years in line with the EU mandatory audit firm rotation requirements to enhance independence. The third-party audit guidance will also be updated to align to RGG Version 9.

Disclosure guidance

RGG Version 9 reaffirms our commitment to ongoing improvements to the public disclosure of information. This is particularly relevant as LBMA meets the challenge of complying with OECD reporting requirements relating to high-risk supply chains and any discontinuance of relationships due to concerns about a supplier’s sourcing practices.

After consultation with the OECD, refiners will begin to disseminate high-level information to LBMA on a phased-in basis. With effect from 1 January 2022, refiners will disclose to LBMA the number and location of high-risk suppliers. In 2023, refiners will complete all relevant contractual changes with suppliers to allow for greater disclosure, while continuing to provide information to LBMA. Thereafter, refiners will provide LBMA with the full list of suppliers operating in high-risk locations. Future versions of the RGG will focus on fuller public disclosure of this information.

Other guidance documents

In addition to the RGG, LBMA revised the third-party audit guidance, the Refiner’s Toolkit, and formalised the standard operating procedures for the Country of Origin data analysis and Incident Review Process.

3 Transparency: Mandatory Disclosure Guidance

In December 2020, the disclosure guidance was launched, which outlines the disclosure expectation that refiners must adopt as part of their supply chain disclosure practices. Refiners are encouraged to opt for proactive disclosure, rather than reactive communication, with regards to potential risks in the supply chain. The guidance includes a template, which highlights what level of disclosure is expected from refiners.

The following recommendations and principles are provided to guide refiners on enhancing their due diligence disclosure:

  • Transparency: Refiners should disclose the nature of the risks that are being dealt with and give information as to the context in which they might occur. For instance, they should provide the location in the supply chain and broader geographical area, as well as the identity of the refiner and local exporter located in the red flag locations.
  • Acknowledge the complexity of risks: Welcome and publicly acknowledge any (new) source of material information with regards to possible risks in the company supply chain and provide external stakeholders with an understanding of the challenges related to the management of these risks.
  • Ongoing communication: Demonstrate the company’s efforts in raising awareness about the complexity of the issues.
  • Accountability: Assure external stakeholders of the company’s responsibility in managing the potential risks in its supply chain.
  • Predictability: Regularly communicate to external stakeholders on the identified issues and on the due diligence steps to be implemented, as per the company due diligence and risk management strategy.

4 Audit Programme: Auditor Training

LBMA recognises that any audit is only as good as the auditor. The ongoing review and enforcement of LBMA’s Approved Service Provider List (list of approved auditors) are important elements for the credibility of the Programme. LBMA engages with auditors through training sessions, webinars and bilateral discussions.

During November and December 2020, LBMA partnered with Synergy Global Consulting to launch a comprehensive training programme for auditors. Participation in this course was mandatory for all LBMA approved auditors. The training focused on improving auditor understanding of the gold market and gold supply chains, as well as focusing on auditor expectation under the audit programme. Detailed case studies were examined and a test was carried out to confirm auditor understanding at the end of the three-day course.

5 Artisanal Small-Scale Mining (ASM): Engaging Responsibly

In addition to amendments to the RGG, LBMA is seeking to improve and increase market access of ASM gold to GDL refiners. For this to happen, a paradigm shift will be required that sees ASM in a separate light to industrial production. In addition to LBMA’s support for standards such as the CRAFT Code, LBMA will also look to support initiatives that focus on supporting progressive improvement, traceability and due diligence in the ASM sector.

Several GDL refiners are already finding innovative ways to do this, such as PX-Precinox’s construction of a smelter close to ASM mine sites in Peru. LBMA also supports linkages between refiners, NGOs and mining co-operatives seeking to formalise and destigmatise the sector.

More information on our ASM strategy can be found in Section 6 covering the Future Development of the Programme.