Sustainability and Responsible Sourcing Report 2023

Chapter 11: Programme Governance

Programme Management

Over the last year, LBMA has prioritised growing the size, experience and skill set of our team so that we can broaden the coverage of sourcing and sustainability issues, as well as be more responsive to the needs and inquiries of Refiners, Approved Service Providers (ASPs) and stakeholders with whom we work.

In meeting this objective, today, the Responsible Sourcing team (RS team) comprises a core Responsible Sourcing team of three supported by
the Policy Manager, the Compliance Officer and the Senior Compliance Associate.

The growth in LBMA’s bench strength is largely attributable to the constantly expanding regulatory and sustainability demands placed on the global precious metals sector, and a need to refresh and codify internal policies and practices that strengthen the overall governance and effectiveness of the Programme.

The core team is the first point of contact for all responsible sourcing queries, dealing directly with stakeholders, and also Refiners and Assurance Providers, to ensure a consistent application of the Responsible Sourcing Programme (RSP). While the team has the primary responsibility to assess Refiner’s annual Assurance Reports, its remit is much wider. Routine tasks and activities include:

  • Managing the ASP List, by ensuring that Assurance Providers adhere to the TPAG and maintaining regular contact with the Assurance Providers. The team has the responsibility to escalate any issues with the ASP List to the Compliance Panel;
  • Planning the annual training of Assurance Providers;
  • Lliaising with ASPs, industry partners, NGOs and governments to support joint efforts that improve sourcing policies and practices;
  • Responding to concerns regarding Refiner’s sourcing practices raised in public reports or from whistle-blowers;
  • Undertaking preliminary inquiries when serious sourcing breaches by Refiners are brought to our attention and contributing to the Incident Review Process if warranted.

The Responsible Sourcing team is here to support Refiners and LBMA Members understand the expected best practices by which to responsibly source the metals through their respective supply chains. The RS team ultimately reports to the General Counsel, who has responsibility for the Sustainability and Responsible Sourcing Strategy.

Responsible Sourcing Compliance Panel: Supporting the Programme Review

PURPOSE

The Compliance Panel was established to support the Assurance Review process. Its purpose is to monitor adherence to the Programme, to review zero-tolerance non-compliance immediately, as well as risks and incidents emanating from Refiners’ annual assurances, and to address any concerns and issues. In addition, the Compliance Panel also reviews the performance of the Assurance Providers and ensures that they remain suitable as Approved Service Providers.

When an incident has been raised, the Compliance Panel may consult the Physical Committee, which will provide industry intelligence for guidance. The Compliance Panel will also determine when to raise an Incident Review Process (IRP), and a full comprehensive report will be submitted to LBMA, the independent Non-Executive Directors and the Executive Directors, to review and make a final determination.

INCIDENT REVIEW PROCESS

The Compliance Panel is also responsible for reviewing the IRP, which is led by the Compliance Officer and overseen by the General Counsel. The Compliance Panel determines whether a particular set of facts warrants an IRP. Once the IRP has been initiated, the Compliance Panel supports the review process.

It is responsible for reviewing the relevant information being provided, raising questions on process and information obtained, as well as providing the final recommendation for the Sub-Board Group to consider. The Sub-Board Group takes the final decision on the outcome of the IRP. See below for more information on decisionmaking. Refer to Section 11 for further details about the IRP.

COMPLIANCE PANEL: TERMS OF REFERENCE

The Compliance Panel has authority to determine the outcome of the high-risk Assurance Reports only. The decision must be unanimous. If the decision is unanimous, then there is no further escalation. If the decision is based on a majority, then this will be escalated to the Executive Committee and ultimately to the Sub-Board Group, which has the final right to decide the outcome.

The Compliance Panel convenes every four to six weeks, depending on the agenda. It is composed of the CEO, General Legal Counsel, Chief Technical Officer, Head of Responsible Sourcing, Head of the Good Delivery, and Senior Compliance Associate.

Several internal committees and groups serve to apply a layered and reinforcing level of governance oversight to the Responsible Sourcing Programme. The various groups and their roles support the credibility, robustness and evolution of the Programme.

LBMA Physical Committee: Guiding the LBMA Executive

The Physical Committee comprises representatives from the physical services delivered within the precious metals market, which include the Chair of the Vault Managers Group. The representatives from the Bank of England are appointed as independent observers of the Committee’s work.

The Committee is primarily responsible for monitoring, developing and enforcing the GDL. With an emphasis on continuous improvement and transparency, the Committee works to improve disclosures, scrutiny and risk management of both LBMA and the wider market. The Committee aims to ensure that the integrity, quality and standards set by the GDL are maintained, which involves collaboration with the LBMA Executive on all matters relating to the Programme and Refiners’ compliance.

LBMA Board: Setting and Reviewing Strategy

The LBMA Board is chaired by an independent Non-Executive Director (NED) and comprises two additional independent NEDs, six market representatives and two LBMA Executive Committee members (Chief Executive and General Counsel). The role of the LBMA Board is to set the strategic and business vision for LBMA. The overall aim of the Board is to enhance the governance and achieve the performance of LBMA’s short- and long-term objectives in full support of its membership’s needs.

The LBMA Executive Committee ultimately oversees the development and implementation of the Responsible Sourcing Programme and Strategy. The Executive Committee ensures that the Programme management and governance remain appropriate.

Sub-Board Group: Decision-making

The ultimate decision to remove a GDL Refiner for Responsible Sourcing failures lies with the Sub- Board Group. Elected members of the Board are not involved in any decision involving Refiners on the Good Delivery List.

The Sub-Board Group is defined in the LBMA Rules for Members as: “The independent members of the Board, which include the independent Non-Executive Directors (NEDs), Chief Executive and the Executive Directors of the Board with the delegated authority to review matters arising in relation to Incidents or Enforcement with regard to members. Any decision by this group is considered final.”

Additional Measures that Support the RSP

WHAT IS AN IRP AND HOW DOES IT WORK?

The IRP is an effective tool to address incidents which are bought to LBMA. It also supports the LBMA Rules and Guidance by ensuring that GDL Refiners and Members adhere to our stringent guidelines and requirements.

Escalation to an IRP may come from a variety of sources, such as industry press and civil society, as well as LBMA’s own proactive monitoring achieved through our internal Due Diligence Procedures. LBMA will seek corroboration wherever possible; however, due to the sensitivities involved, LBMA may keep the information received under the process confidential.

Overseen by the General Counsel, the process is designed to ensure a thorough and fair review of the Refiner’s and Member’s activities and involves follow-up communications with the ASP, the Refiner or Member and any other stakeholder related to the incident.

Each step within the IRP is a high priority for LBMA. Upon receipt of relevant information, the Compliance Panel reviews whether to instigate the IRP. The Refiner or Member will then be notified of the identified issue before LBMA publicly notifies the market via its website.

LBMA will urge the Refiner or Member to demonstrate transparency on the allegations reported, publicly. LBMA requests the Refiner or Member to disclose the challenges and identified risks, and how those risks have been mitigated, as well as what further action
the Refiner is taking. LBMA will also undertake another thorough review of the Refiner’s assurance engagement report, contextualised by the alleged incident. It is an iterative process, particularly in situations where new information is produced, or as the situation escalates or deteriorates.

The outcome of an IRP can involve a Refiner being removed from the GDL or a Member having its Membership revoked. Other outcomes include an independent Assurance Provider developing a Corrective Action Plan (CAP) for the Refiner’s future activities or a special re-assurance of the Refiner’s activities that were originally reviewed. The 2022 enhancements of the IRP ensure our signature investigative and disciplinary tool remains responsive, effective and current with industry best practices. This includes public reporting when IRPs are announced and concluded, and the outcome of those IRPs. These are published as they occur, as well as in LBMA’s Annual Sustainability and Responsible Sourcing Report.

Special Assurances

A Special Assurance has a very specific focus and helps to provide a second opinion to confirm the GDL Refiner’s compliance with the Responsible Sourcing Programme during the reporting period. It can arise from:

• queries arising from Country of Origin data reported confidentially to LBMA;

• media allegations;

• whistle-blowing;

• part of an Incident Review Process;

• market intelligence.

Under a Special Assurance, LBMA may select another Assurance Provider, who is independent of the original Assurance Provider, or ask the existing Assurance Provider to carry out an assurance engagement with a specific focus. For example, LBMA requires additional Special Assurances from certain Refiners with respect to specific concerns raised about the sectoral-wide vulnerabilities in their respective countries.

The Incident Review Process (IRP) comprises 11 steps for LBMA to take in response to any incidents or issues that put the credibility of the GDL and wholesale bullion market in doubt.