Commercial prudence

Principle #6

Implementation guidance

6.1 Adequate financial resources


Monitor and maintain adequate financial resources to meet any liabilities, especially with regards to customers’ claims. Resources should include safety buffers for unexpected events.

A provider must not take excessive risks and should be prepared for various eventualities, including a company wind-down.

Maintain adequate liquid and capital resources:

  • Manage the business’s liquidity so that all liabilities can be met as they fall due.
  • Be prepared to cover financial requirements resulting from unplanned occurrences; this could include substantial exchange rate fluctuations or changes in the gold price.

Ensure the continuity of sufficient resources:

  • Identify and manage any financial risks through appropriate liquidity and risk management systems and controls.
  • Keep an adequate financial buffer to cover risks that your business chooses to incur.

6.2 Limited risk-taking


Limit risks, such as those which can arise from unhedged gold stock positions or foreign exchange holdings, so that even adverse conditions do not threaten customers’ assets and claims or the continuity of the company’s operations.

Know your risk tolerance:

  • Limit direct financial risks for your company that could pose indirect risks for your customers, e.g. in the event that the company’s operations have to be discontinued.

Limit your risk- taking:

  • Define internal risk limits in relation to market risks, such as trading positions in gold, currencies or derivatives, which could threaten your company’s liquidity.
  • Implement a risk limit system to ensure compliance with risk limits.

6.3 Wind-down planning


Be prepared for potential wind-down scenarios, including involuntary market exit or company collapse. The key objective is to avoid or minimise any negative impacts on customers.

Plan for potential wind-downs scenarios, which could include:

  • market exit due to a strategic decision (i.e. a voluntary wind-down)
  • market exit, where the company is no longer viable due to a lack of commercial success
  • market exit, where the company is no longer viable due to fraud, theft or significant operational errors or failures.

Minimise adverse effects:

  • Identify and regularly monitor key metrics (e.g. potential thresholds) and early warning signs so that you can make timely wind-down decisions.
  • If possible, schedule a desired or required market exit so that there are adequate resources for an orderly wind-down. This typically applies to the first two scenarios above.
  • Identify potentially negative impacts of a wind-down and plan mitigatory measures. Special consideration should be given to returning any gold or cash held on behalf of customers.

Plan for all eventualities:

  • Assign responsibilities around issues such as planning or approval of a wind-down plan.
  • In each scenario, define required steps for a wind-down (or recovery where feasible).
  • Identify the required resources for any wind-down, including human resources, financial resources, IT systems or outsourced services, retrievable information on customer gold holdings and customer monies.