Shining the business conduct with LBMA’s Global Precious Metals Code, 2022

Shining the business conduct with LBMA’s Global Precious Metals Code, 2022

London Bullion Market Association (LBMA) has issued LBMA’s Global Precious Metals Code, 2022, laying down the highest standards for business conduct expected from market participants engaged in the global Over-The-Counter (OTC) wholesale trade of precious metals.

Who is subject to LBMA’s Global Precious Metals Code?

Various participants are engaged in the Precious Metals Market, with different activities around precious metals –extraction, refining, storage, financing, transportation, storage, financing, trading, and marketing. The LBMA’s Global Precious Metals Code applies to all Precious Metals Market participants involved in global OTC wholesale trade, which include:

  • LBMA Members
  • Precious metals Refineries & Mining entities
  • Precious metals Logistics firms
  • Precious metals Fabricators
  • Jewellery entities
  • Financial institutions like Banks, Asset management companies, Exchange Traded Funds, Firms engaged in high-frequency trading strategies, Brokers, investment advisers, aggregators, etc.
  • Trading houses and Affirmation & settlement platforms
  • Sovereign wealth funds
  • Benchmark Administrators

All these market participants are required to implement this Code commensurate with the size and nature of the business activities.

What precious metals are governed under LBMA’s Global Precious Metals Code?

The Code sets out the standards for ensuring the highest quality conduct of the market participant engaged in activities related to the following precious metals:

  • Gold
  • Silver
  • Platinum
  • Palladium
Shining the business conduct with LBMA’s Global Precious Metals Code, 2022

What are the four (4) principles discussed in the LBMA's Global Precious Metals Code?

The following four principles are emphasized in the Code to ensure the global best practices in the Precious Metals Market:

A. Ethics:

All the precious metals organizations subject to this Code are expected to act professionally and ethically to maintain the integrity of the global precious metals market. It must deal with all its customers, suppliers, employees, and all other business associates in the utmost fair manner.

The companies are expected to implement appropriate internal policies to identify and address the conflict of interest that may comprise its code of ethics or professional standards.

The companies are expected to promote equality and avoid discrimination amongst customers, employees, etc.

The market participants are expected to impart adequate training to their employees to ensure that market obligations are discharged ethically and professionally.

B. Governance, Compliance, and Risk Management:

Market Participants are expected to identify the risks associated with their precious metals activities and implement appropriate governance and risk management frameworks to manage these risks, including a comprehensive compliance management program.

The companies are expected to evaluate the risk arising out of the following factors concerning their precious metals operations:

  • Market and credit-related risks
  • Operational and Settlement-related risk
  • Risks related to Technology & Cyber Security
  • Compliance and Legal risk
  • Business Continuity risk
  • Conduct and Reputational risk
  • Economic and Trade risk

As part of an adequate governance structure, the senior management is responsible for designing the business strategies and overseeing the business operations to ensure the company’s financial security.

Precious metals companies must comply with all the applicable rules and regulations, including the anti-money laundering framework. The internal policies must be well documented, highlighting the regulatory obligations, procedures & controls to ensure adequate compliance.

Further, the companies are expected to have well-defined lines of reporting, with clear roles and responsibilities for managing the precious metals operations. There shall be smart systems for the accurate and timely generation of MIS reports, which is necessary as part of the governance and risk management framework.

Through a well-designed whistle-blowing policy, employees must be encouraged to escalate any observed instances of inappropriate business practices or unethical behaviour of any market participants – internally and externally.

A periodic review of the governance, compliance, and risk management framework is suggested in the Code to ensure that the companies’ set operations mechanism is aligned with the highest professional standards and the applicable laws, including this LBMA’s Code. Any gaps identified by the independent reviewer must be highlighted to the senior management for their immediate action to rectify these breaches.

C. Information Sharing:

Precious metals market participants must communicate effectively and transparently within the business community. Market Participants are also expected to manage the confidentiality of critical market Information.

The companies shall not divulge confidential information that hampers standard market practices.

The communication must be fair and open, with clear language and with no or minimal use of technical jargon. Further, appropriate communication channels must be used to ensure the market’s integrity and maintain the required audit trails.

Companies are strictly prohibited from initiating or spreading rumours or circulating any misleading information which affects the best business practices of the precious metals market.

D. Business Conduct:

Precious metals companies are expected to effectively manage their pre-trade and post-trade business activities fairly and transparently.

As part of pre-trade business conduct, the market participants are expected to sign an agreement or similar document with the customers, suppliers, etc., with a clear scope of a business deal, terms of trade, and price points. Appropriate Know Your Customer and Customer Due Diligence measures must be applied before establishing any business relationship with other market participants. The companies must identify any risk associated with the customers and suppliers, including the supply-chain risk.

The precious metals trades must be executed fairly, with clear disclosure of the markups and the methods used for arriving at the markup. The markups must be determined professionally without misrepresenting any cost factors. The companies are prohibited from executing any trade against the LBMA’s precious metals benchmark (i.e., the prices determined by LBMA).

For post-trade business conduct, the company must initiate confirmation communication with the customer about the executed trade or deals that are amended or cancelled. Further, the market participants are expected to perform ongoing reviews and monitoring of the transactions, including periodic reconciliation of the customer’s accounts to identify gaps or delinquent payments.

The market participants are expected to design internal policies to ensure no trade payments are expected from unrelated third parties or cash payments exceeding a certain threshold.

How can AML UAE assist you with developing your Code of Business Practices aligned with the LBMA’s requirements?

The Dealers in Precious Metals in UAE, engaged in the wholesale trade of gold, silver, platinum, and palladium, are expected to adopt this Global Precious Metals Code, 2022, to promote transparency and integrity of the global precious metals market.

AML UAE is an AML consultancy firm supporting Dealers in Precious Metals and Stones to implement the AML framework and stay AML compliant. We help the DMPS develop tailor-made AML/CFT policies, procedures, and controls to identify and mitigate financial crime risks.

With our experience of dealing closely with dealers in precious metals, we understand the business operations and compliance requirements of the precious metals sector, such as the Responsible Gold Sourcing Code and the LBMA’s Global Precious Metals Code. With this, you design a comprehensive compliance framework to manage your business operations with highest of the ethical practice and professional standards while staying compliant with local and international regulatory frameworks (FATF, OECD, LBMA, etc.).

Make significant progress in your fight against financial crimes,

With the best consulting support from AML UAE.

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About the Author

Jyoti Maheshwari


Jyoti has over 7 years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.