REGULATORY & RESPONSIBLE SOURCING DEVELOPMENTS - Sakhila Mirza, Executive Board Director and General Counsel Thursday 16 April 2020 - LBMA
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REGULATORY & RESPONSIBLE SOURCING DEVELOPMENTS Sakhila Mirza, Executive Board Director and General Counsel Thursday 16 April 2020
01 Financial Services 02 Responsible Sourcing 03 LBMA Update
Trade
Conflict Reporting
Global
Minerals
Precious
Regulation
Metals Code
(8 months)
NSFR (14 Responsible
months) Sourcing
SFTR Supply &
(3 months) Capacity
PM
Markets
Logistical
Lockdowns Challenges
COMEX/
Benchmarks
Futures
Volatility Vaulting
FINANCIAL SERVICES SECURITIES FINANCING TRANSACTIONS REGULATION (SFTR)
Aims to reduce systemic risk in the Securities Financing Transaction (SFT) market by
increasing transparency
Which precious metals transactions are SFTs?
In scope
• Financing loans and leases
• Spot and forwards if linked and with FCs for financing purposes
• BSB – SBB transactions
• Repurchase transactions
Out of scope
• Physical loans and leases for industrial/operational purposes
• Physically settled gold swaps and commodities rolls
• Precious metals transfer tickets
Grey area
• Spot/forwards if not linked or with NFCs
FINANCIAL SERVICES SECURITIES FINANCING TRANSACTIONS REGULATION (SFTR)
ESMA delayed reporting obligations until 13 July 2020 and removed backloading obligation
LBMA’s role
Two Working Groups established: Policy and Operations
Market guidance has been published to ensure all market participants take the same
approach to identified issues:
• Operational/industrial exemption and how to apply on a counterparty basis
• FCs: if the transaction is for non-financing purposes, the exemption can be considered.
• NFCs: all transactions are assumed to be conducted for operational/industrial purposes. Use
market-standard representation letter to notify counterparty.
• Spot/forwards and how to determine whether they would be linked transactions
• First and second legs sufficiently linked and entered into simultaneously with the same
counterparty – operational/industrial purpose exemption may still apply
• Consistently reporting SFTs within agreed templates for each SFT and ensuring method for
completing data fields is uniform
FINANCIAL SERVICES LBMA TRADE REPORTING
Voluntary reporting helps to understand the role and size of the Loco London market
56 reporting entities, all of whom are LBMA members. Want to extend to beyond LBMA members:
Contact David Gornall, Senior Advisor to LBMA
Daily average values for gold
November 2018 (started 18/11/18) November 2019 March 2020
Approx. 20mln oz/$40bn Approx.32mln oz $47bn Approx. 47mln oz/ $83.1bn
Recent daily high of $100bn for gold
Other data sets include (under subscription):
• Volume reports for all four metals
• Volume break down for spot, forward and options
• Volume in price tranches and options reports
Data is available through NASDAQ. Also later stage will be made available through other data
vendorsFINANCIAL SERVICES NET STABLE FUNDING RATIO
85% hair cut for gold (and other precious metals)
What does that mean for the market?
• Fall in market liquidity as banks look to potentially exit
• Cost of doing business goes up
• Settlement service provided by LPMCL becomes impacted
Time of crisis
Gold behaves as a safe haven – trading volumes have gone up. Plenty of gold in the market!
Data
• LBMA trade data has shown gold is a liquid asset. EBA previously had relied on the Amihud
calculation, which if run with the new data, will classify gold as a extremely high quality liquid
asset, as its more liquid than EU sovereign bonds
• Amihud - regulators use this ratio to estimate liquidity trends
What’s next?
Sharing data with EBA, and using current crisis to demonstrate golds liquidity. Timeline, EBA report
to finalise by April 2021. Share data with them by end of summer for meaningful analysis.FINANCIAL SERVICES CONFLICT MINERALS REGULATION
Public reporting due no later than 1 January 2021
Who is affected? The Regulation requires companies importing 3TG into
the EU to follow the OECD’s five-step framework:
• All companies (refiners,
mints, banks, traders,
retailers etc.) importing Corresponding article
Due Diligence Guidance 5-Step number in the EU
100kgs+ of gold into the Framework Conflict Minerals
EU. This includes doré, Regulation
bars and coins. Establish strong company management systems 4
Identify and assess risk in the supply chain 5
• Non-EU suppliers who Design and implement a strategy to respond to 5
need to prove to EU identified risks
importers they source Carry out an independent third-party audit of 6
responsibly. supply chain due diligence
Report annually on supply chain due diligence 7FINANCIAL SERVICES CONFLICT MINERALS REGULATION
How can EU importers get ready?
ALL importers (banks, traders, dealers, retailers) must identify refiners in gold supply
chain.
Source only from refiners/suppliers in compliance with a recognised due diligence
scheme (i.e. all LBMA Good Delivery List refiners comply with LBMA Responsible
Gold Guidance).
Formalise management systems in line with LBMA Responsible Gold Guidance and
OECD Due Diligence Guidance.
Public reporting no later than 1 January 2021.FINANCIAL SERVICES UPDATES FROM THE REGULATORS
FCA
Key resource for updates: https://www.fca.org.uk/coronavirus
Consultation deadlines postponed to October 2020
Actively reviewing firms’ operational resilience and contingency plans
Keep up to date on SFTR via their webpage: https://www.fca.org.uk/markets/sftr
ESMA
Key resource for updates: https://www.esma.europa.eu/node/90557
Coordinating with NCAs to help business continuity
Clarified requirements on recording of telephone conversations, postponed deadlines,
and coordinated the implementation of short selling measures
Keep up to date on SFTR via their webpage:
https://www.esma.europa.eu/sections/securities-financing-transactions01 Financial Services 02 Responsible Sourcing 03 LBMA Update
RESPONSIBLE SOURCING JOURNEY
Review of the last seven years
LBMA introduces v.6,
which is fully aligned
with OECD guidance, Responsible Sourcing
First set of audit This version makes the Programme expanded
reports received for LBMA toolkit in scope to include
2013 production. mandatory ESG agenda. RGG v.8
2012 2014 2016 2017 2018 2019
Responsible Gold OECD launches the Responsible Silver
Guidance launched pilot programme to LBMA introduces audit received
(later to be part of the assess industry Responsible Silver (mandatory year)
Responsible Sourcing schemes alignment Guidance, which is
Programme) with the OECD now part of the LBMA
RGG v.1 guidance. (Alignment Responsible Sourcing
Assessment) ProgrammeRESPONSIBLE Position LBMA as a leader for the continuous
improvement of Responsible Sourcing standards and
SOURCING business practices to ensure a sustainable precious
STRATEGY metals market
Priorities Action
Creating Trust Transparency External advisor Synergy engaged to lead on disclosure
Improving Disclosure Top Priorities
requirements for both LBMA and Refiners.
Call to Action –
Audit Programme A detailed review of the Approved Service Providers was
engage responsibly in also conducted end of 2019.
Upholding Trust
High Risk Area Stakeholder engagement for further development
Advancing Standards improvements in the overall Responsible Sourcing
Greater Transparency Defining Best Practice Programme based stakeholder feedback
ASM and high-risk areas Involved in various market initiatives to support
Engaging Responsibly engagement with ASM – has to be a market collective
Accountability across effort
the Value Chain
Value Chain Accountability Working with miners to develop the miner’s toolkit and
Building Leverage bullion bank reporting templateRESPONSIBLE SOURCING VIRTUAL SUMMIT
https://www.lbmaresponsiblesourcingsummit2020.com/
Refineries as the 'Gate Keepers' Comments received
Dr Mark Pieth, Professor of Criminal Law and
Criminology at the University of Basel Generalist auditing firms should be partnering with
specialist mining consulting firms.
“I don’t consider de-risking of certain world regions or of ASM in
general is a valid option … there are possibly 100m people Standard setters should create an independent body of
worldwide depending economically on ASM” specialists that reviews the audit to help auditors with the
issue of independence.
“Independent third party audits are crucial if you want to show your
credibility” The creation of an independent body doing third party
mine site assessments could create the risk of
“Let’s accept that most refiners are SMEs with limited resources in “externalising” due diligence responsibility.
legal and compliance”
For on site assessments, compliance officers are not
“Need credible due diligence within the supply chain … could always on top of ASM realities and field research
specialised third parties do the due diligence of mines on behalf of techniques. The risks are so diverse - it can be difficult for
the entire community?” compliance staff to know how to spot integrity, social, and
environmental risks
“No antitrust issues with collective due diligence by refiners”RESPONSIBLE SOURCING VIRTUAL SUMMIT
https://www.lbmaresponsiblesourcingsummit2020.com/
Conflict and High-Risk Gold “Conflict gold is an emerging issue for the gold
Sasha Lezhnev is Deputy Director of Policy industry”
at the Sentry
“Armed groups either control the mines themselves,
control the checkpoints or raid the mines”
“Some responsibly mined gold is not accepted by the
market yet … important for companies not de-risk.
More education needed around these areas”
“Banks need to develop more expertise in trade-based
money laundering due diligence and gold refining more
generally”
“There need to be consequences for those who trade
inn conflict-affected gold”Key =
VALUE CHAIN APPROACH Value
chain
actor
Existing
mitigation
measures
Upstream (Supply) Downstream (Buy)
WGC Intermediaries Bullion Merchants Industrial Dodd-Frank
ICMM - Aggregators LBMA EU regs
LSM / MSM GDL Refiners - Bullion banks Bullion Bank RBA
IRMA - Comptoirs RGG/RSG
- Traders reporting
- Traders Dodd-Frank
- Exporters EU regs
- Brokers
ARM - Smelters Exchanges
ASM CRAFT
SGE
- Illegal - Transporters India
GEM
- Panners Jewellery
RAGS OECD RJC
- Coops Non-GDL
Fairtrade
Swiss BG Refiners Central Banks
LBMA
Solidaridad engagement
Canada
Ad hoc Investors
initiatives
- ETFs Fabricators/Mints
- Pension funds
- Collectors
Recycled Gold LBMA - Wealth
- Electronics Money laundering managers
regs Electronics Dodd-Frank
- Jewellery
RMI
- Grandfathered
What role should LBMA play in enhancing the leverage of refiners, banks and key
actors/stakeholders to achieve positive outcomes?TECHNOLOGY DEVELOPMENTS
01 Identifying a technology-based market solution that
addresses the risk of duplicate and/or counterfeit
bars, as well as the risks arising in relation to supply
chain provenance. This initiative builds on the
LBMA’s Responsible Sourcing Programme.
02 Security Feature: covert and overt security features to
provide confidence in the bar being what it purports to Further
be.
strengthening
Centralised Database: For all bars to help address any the gold supply chain
potential fraud issues
03 LBMA is working with partners and other markets
around the world to ensure that we are continuing to
advance standards for the common good of the
global industry.01 Financial Services 02 Responsible Sourcing 03 LBMA Update
LBMA UPDATE LBMA’s role in maintaining market continuity Delivering more information more regularly and supporting market development LBMA Rulebooks For Members and Associates For Good Delivery Refiners Global Precious Metals Code Sets out best practice for market participants in promoting and maintaining market integrity Market Participants are encouraged to review their compliance with the Code Particularly the principles under Business Conduct: Pre-Trade and Execution Engagement Infrastructure providers, market participants, stakeholders, media, regulators and authorities
THANK YOU
SAKHILA.MIRZA@LBMA.ORG.UK
WWW lbma.org.uk
@lbmaexecutive
LBMA
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