LONDON, May 25 (Reuters) - The London Bullion Market Association (LBMA) is launching a code of conduct aimed at boosting confidence in the $5 trillion a year London gold market, it said on Thursday, following years of heightened regulatory scrutiny of the city's financial sector.
The guidelines set out best practice in ethics, governance, compliance and risk management, information sharing and business conduct, the bullion market's trade association said in a statement.
"The code is an important step forward to build greater trust, consistency and transparency throughout the market," LBMA chairman Paul Fisher said in the release.
The LBMA said its more than 140 members - which include banks, refiners, traders, and fabricators - will be required to sign a statement of commitment to the code, which will be mandatory from June 2018.
"Members will have a 12-month period to demonstrate compliance with the code. Failure to do so could potentially result in their membership either being suspended or withdrawn," a spokesman for the LBMA said.
The code is one of three developed as a result of the Fair and Effective Markets Review (FEMR) of the fixed income, forex and commodities markets which was commissioned by the UK government in three years ago after British banks were fined billions of pounds for trying to rig benchmark interest rate Libor, and manipulate foreign exchange reference rates.
The FEMR found that informal codes of practice across these markets had often been misunderstood or disregarded, especially in bilateral over-the-counter (OTC) markets like gold. A lack of internal controls and personal accountability had meanwhile contributed to what it called "ethical drift".
The review recommended that firms working within these markets should take greater collective responsibility for "developing and adhering to clear, widely understood and practical standards of practice".
In the wake of the Libor scandal, London's precious metals price benchmarks, or fixes, were reconfigured, while the LBMA overhauled its management structure last year and announced moves towards trade reporting.
Rising concerns over regulation and a resulting push towards greater transparency have fuelled speculation that more of London's OTC gold trading could move onto exchanges.
Intercontinental Exchange (ICE) launched new precious metals contracts earlier this year, and the London Metal Exchange (LME) plans to launch its LMEprecious suite of contracts in July. (Reporting by Jan Harvey; Editing by Greg Mahlich)