The Member Audit Programme (MAP) runs thematic annual reviews designed to check that members have appropriate systems and controls in place to ensure ongoing compliance with LME rules and notices.
Audit topic and member selection
The topics of the audit programme are agreed with senior LME management at the start of each calendar year. Once audit topics are selected, the timing of each audit during the calendar year is agreed.
The MAP team then selects a sample of relevant members to include for each audit in question, with the aim of including all members for at least one audit during the year.
Factors that may be considered when selecting members for an audit include (but are not limited to):
- trading volume
- membership category
- the business activity of the member
- the member’s recent conduct
- current or new regulatory requirements and/or market topics
Lifecycle of an audit
An audit can be broken down into the following stages:
1. Preparation stage
This stage involves:
- scoping the audit
- selecting members
- drafting information requests
An information request (IR) is typically in the form of a letter with questions, and requires the provision of supporting documentation relevant to the audit in question.
A member is not subject to the audit in question if they do not receive an IR.
2. Analysis stage
The MAP team reviews the material provided by the members and determines whether further information is required.
Members are obliged, under Regulation 12 of Part 2 of the LME Rulebook (PDF), to provide information and documentation to the LME, which includes when information is required as part of an audit.
The MAP team may ask members follow up questions if the initial response did not provide adequate detail, or further clarification is required for the team to determine the audit outcome.
Once the MAP team has obtained sufficient information, it conducts a thorough review in order to assess a member’s compliance with its obligations under the LME Rulebook (PDF) with respect to the audit topic.
Following the review, the team will assign each member an audit rating. There are three possible ratings:
- “Acceptable”
- “Remedial action required”
- “Failure to comply”
3. Supervision/oversight stage
Market Surveillance agrees the audit ratings with the MAP team.
4. Finalising the audit stage
Once audit ratings have been agreed with Market Surveillance, an audit report is produced. This report is an internal report and is not shared with members subject to an audit. However, members are provided with a final audit letter. The purpose of the final audit letter is to detail the LME’s findings of the member’s compliance with its obligations under the LME Rulebook (PDF) in respect of the audit topic.
Audit ratings explained
Acceptable
This rating means that the member has been able to provide enough evidence of a suitable control framework for the topic of the audit. This normally means that no further action is required by the member. The audit team may, however, also provide an “Acceptable” rating alongside a recommendation detailing where some minor improvements could be made to a member’s existing systems and controls framework.
Remedial action required
This rating means that the team has concluded that while there is evidence of a control framework, material improvements are required to existing processes, procedures and documentation through the implementation of agreed remedial action.
If a member has been assigned a “remedial action required” rating, the final audit letter will set out suggested steps a member could take for remedial action.
Failure to comply
This rating means that the member has failed to demonstrate compliance with the LME Rulebook (PDF) and has therefore failed the audit.
When a member receives a “failure to comply” audit rating, the MAP team will refer this audit outcome to the LME’s Referral Committee so that the Committee can discuss and agree any action that might be taken. This can include, but might not be limited to, the commencement of a formal investigation.
Prior to a “failure to comply” audit outcome being referred to the LME Referral Committee, a member will be provided an opportunity to address or comment on any issues raised in the final audit letter in writing.
If a member provides their written comments, these will be considered by the LME Referral Committee when it decides next steps.
It should be noted that the referral of an issue to the Committee does not automatically mean that a formal investigation will commence. Each case is decided on an individual basis and on the information provided by a member.
If a member receives a “failure to comply” rating, but during the audit process has fully addressed the findings, the audit will be closed with no further action.
Please note however that the audit rating will remain unchanged as the member’s systems and controls were deemed inadequate at the point in time at which their controls were assessed. The matter will still be referred to the LME Referral Committee, but in making its determination the committee will consider the cooperation and remedial actions that have been taken.
Next steps
If members receive final response letters with a rating of either “acceptable” or “remedial action required”, members should treat such audits as having been closed by the MAP team.
However, in certain circumstances, final response letters with ratings of either “acceptable” or “remedial action required” may require a member to provide periodic updates regarding the status and progress of certain remedial work. In these cases, while the audit will be considered closed as at the date of the final audit letter, further information would be provided by the MAP team as to what periodic updates would entail.
Where members receive a “failure to comply” audit rating, a letter will be sent to the member explaining what the next steps will be.
Length of audits
Timelines for completion of audits will vary widely depending on the nature and complexity of the audit topic. Audit timelines can also depend on the completeness of the information and documentation provided by the member. We encourage members to contact the MAP team if they are either unclear on the requirements of an audit or require clarification on any of the questions asked in an IR, prior to submitting their responses.
Audit closure
Regardless of the final rating applied, the MAP team sends final audit letters to members who were audited.
Notice 16 007: A007 - Introduction of a Revised Member Audit Programme (PDF)
Member Oversight functions
Referral Committee
Investigations
