The UK Financial Conduct Authority is considering a tailored regulatory framework that could exempt certain tokenized gold products from existing fund rules, in a move aimed at making London’s bullion market more efficient and competitive.
According to a report from the Financial Times, the FCA plans to explore, alongside the UK Treasury and Bank of England, whether tokenized gold should fall under a separate regime rather than existing collective investment scheme (CIS) and alternative investment fund (AIF) rules.
The proposal comes as regulators look for ways to expand the use of tokenization across wholesale financial markets and make traditionally physical assets easier to use as collateral.
Gold moves toward tokenization
Tokenized gold represents ownership rights in physical gold through digital assets, with the issuer holding the underlying bullion.
The FCA said tokenization could make gold easier to divide, transfer, and settle across digital markets. The technology could also allow more of the bullion held in London to be used as collateral in financial transactions.
The FCA has also held early discussions with industry participants, including major banks, on how tokenized gold could be regulated and used in wholesale markets. The regulator is particularly examining its potential as collateral, with plans to develop regulatory standards expected in the coming months.
“Tokenized gold has emerged as an area of interest,” said Jon Relleen, FCA director of infrastructure and exchanges.
Industry participants have warned that some tokenized gold structures could fall under existing CIS or AIF rules, potentially restricting access for certain investors.
The FCA said it could work with the Treasury to introduce a targeted exemption for certain tokenized gold products or gold-market infrastructure. However, the regulator has not made a final decision on the proposal.
The review also comes as the UK seeks to protect its position in the global bullion market. The country accounts for about 70% of global gold trading volumes, according to the World Gold Council, while China is seeking to strengthen its position as a major bullion center.
Relleen said the FCA is examining whether existing regulatory frameworks “remain the right fit for gold markets” as tokenization changes how assets are traded and settled. The initiative is part of a wider UK push to bring tokenization into wholesale finance and improve the efficiency of traditional financial markets.
Tokenization could free up collateral
The FCA and Bank of England are also examining tokenization as a way to reduce friction in post-trade processes such as clearing and settlement.
Regulators said market participants see an opportunity to release capital currently tied up as excess collateral. Recent research cited by the authorities found that US market participants held an average of 7% more collateral than required as an additional safety buffer.
The Bank of England is separately considering whether tokenized assets, including stablecoins, could become eligible collateral under its Sterling Monetary Framework.
The central bank is also expected to consult later this year on whether central counterparties should be permitted to accept tokenized assets as collateral.
The FCA, Treasury, and Bank of England are expected to continue evaluating the regulatory treatment of tokenized gold and other tokenized commodities. Any exemption would require further regulatory work, meaning the proposal does not yet establish a new legal framework for tokenized gold in the UK.
Also Read: Canada’s OSFI Gives Banks Clarity on Tokenized Deposits
