The Financial Conduct Authority (FCA) has signalled that it is seriously weighing the possibility of creating a bespoke regulatory carve‑out for tokenised gold assets, a move that could have far‑reaching implications for the United Kingdom’s financial services hub. The initiative is being pursued in close partnership with Her Majesty’s Treasury, with the aim of establishing a clear, purpose‑built framework that would treat digital gold differently from other crypto‑derived investment products that fall under the traditional fund regime.
At the heart of the discussion is the desire to protect and reinforce London’s position as a global centre for asset management, while also recognising the rapid evolution of blockchain‑based securities. Tokenised gold – essentially a digital representation of physical gold that is recorded on a distributed ledger – has attracted considerable interest from institutional investors, wealth managers, and fintech firms seeking to combine the timeless store‑of‑value qualities of gold with the efficiency, transparency and fractional ownership that blockchain technology can provide. Currently, the FCA’s regulatory approach to collective investment schemes is governed by the Collective Investment Schemes Sourcebook (CIS), which imposes a suite of requirements covering everything from disclosure and risk management to liquidity and capital adequacy.
These rules were drafted with conventional assets in mind – equities, bonds, real‑estate and the like – and they do not map neatly onto the technical and operational characteristics of tokenised assets. For instance, the CIS framework assumes a centralised custodian model, whereas many tokenised gold platforms operate on a decentralised or hybrid custody structure, with the underlying gold stored in vaults that are often geographically dispersed and audited by third‑party entities. By carving out tokenised gold from the CIS regime, the FCA hopes to avoid a situation where the existing rules either stifle innovation or create regulatory arbitrage opportunities that could undermine investor protection. A bespoke regime would allow the regulator to tailor requirements around issues such as provenance verification, vault auditing, on‑chain transparency, and redemption mechanisms, while still ensuring that investors enjoy a high level of safety and clarity about the assets they hold.
The Treasury’s involvement is crucial because any regulatory deviation from the standard fund rules may have implications for the broader legislative landscape, including tax treatment, anti‑money‑laundering (AML) obligations, and cross‑border recognition of the tokens. The Treasury’s role would be to ensure that any new framework aligns with the UK’s overall financial stability objectives, maintains compliance with international standards, and does not create unintended gaps that could be exploited for illicit activity. Several practical considerations are already being debated. One key issue is the definition of “gold” in a digital context.
The FCA and Treasury will need to agree on criteria that determine when a token truly represents physical gold – for example, requiring that each token be backed 1:1 by allocated gold stored in a recognised, independently audited vault, with a transparent audit trail that can be verified on‑chain. Another point of focus is the custody model: while some platforms may rely on traditional custodians that hold the physical metal, others might use a network of vaults linked through smart contracts. The regulator will likely require robust governance arrangements, clear lines of responsibility, and contingency plans for events such as vault breaches or supply chain disruptions. Investor protection remains a top priority.
Even though tokenised gold is generally viewed as a low‑risk asset class, the digital layer introduces new vectors of risk – smart‑contract bugs, cyber‑security threats, and operational failures of the token‑issuing platform. A bespoke regime could impose mandatory smart‑contract audits, regular penetration testing, and mandatory insurance or capital buffers to cover potential losses arising from technical failures. Liquidity is another area where the FCA’s bespoke rules could diverge from traditional fund rules. Conventional funds often have strict liquidity requirements to ensure that investors can redeem their holdings on demand.
Tokenised gold, however, can be traded on secondary markets 24/7, potentially offering greater liquidity but also exposing investors to price volatility and market depth concerns. The regulator may therefore craft rules that balance the need for redemption rights with the realities of a continuously operating blockchain market, perhaps by setting minimum market‑making obligations or requiring issuers to maintain a reserve of physical gold that can be redeemed in cash or physical form.
The potential benefits of an exemption are significant. For the UK, it would cement London’s reputation as a forward‑looking hub for digital asset innovation, attracting fintech firms, institutional investors, and service providers who want to operate under a clear, supportive regulatory environment. It could also encourage the development of ancillary services – such as custodial solutions, audit firms, and legal advisers – that specialise in the tokenised gold space, creating jobs and fostering expertise.
On the flip side, critics warn that creating a separate regulatory track could lead to a fragmented market, where similar assets are subject to divergent rules depending on how they are structured. To mitigate this risk, the FCA and Treasury have emphasized that any bespoke framework would be narrowly scoped to tokenised gold and would be subject to regular review to ensure it remains proportionate and does not inadvertently create loopholes. In summary, the FCA’s exploration of a tailored exemption for tokenised gold reflects a broader regulatory shift towards accommodating the unique characteristics of digital assets while preserving the core principles of investor protection, market integrity, and financial stability. By working hand‑in‑hand with the Treasury, the regulator aims to craft a set of rules that recognise the benefits of blockchain‑based gold tokens – such as fractional ownership, instant settlement, and enhanced transparency – without compromising on the rigorous standards that have underpinned the UK’s fund industry for decades.
If successful, this initiative could serve as a blueprint for future regulatory approaches to other tokenised commodities, paving the way for a more inclusive and innovative financial ecosystem in London and beyond.