The Financial Conduct Authority (FCA) has signalled that it is actively reviewing whether digital, or tokenised, gold should be treated differently from other investment products under the United Kingdom’s fund legislation. In practical terms, the regulator is weighing the possibility of creating a bespoke regulatory carve‑out that would allow tokenised gold to operate outside the conventional framework that governs collective investment schemes such as mutual funds, unit trusts and open‑ended investment companies. This initiative is being pursued in close partnership with Her Majesty’s Treasury, reflecting a broader governmental ambition to preserve and enhance London’s status as a global hub for financial innovation, particularly in the fast‑growing arena of digital assets. Tokenised gold refers to a digital representation of physical gold that is recorded on a blockchain or other distributed ledger technology.
Each token typically corresponds to a specific quantity of the metal, often one gram or one ounce, and is backed by a custodial arrangement that guarantees the underlying physical asset is stored securely in a recognised vault. The token can be transferred, split, or combined with ease, offering investors a level of liquidity and accessibility that traditional gold holdings do not provide. In recent years, a number of fintech firms and crypto‑focused platforms have launched tokenised gold products, attracting both retail and institutional participants who seek the stability of a precious metal combined with the speed and programmability of blockchain‑based assets.
The FCA’s interest in carving out an exemption stems from several interlinked concerns. First, the existing fund rules were drafted before the emergence of blockchain technology and therefore may not be well‑suited to the unique characteristics of tokenised commodities. Applying the same compliance obligations – such as detailed prospectuses, stringent valuation methodologies, and ongoing reporting requirements – could impose disproportionate costs on providers of tokenised gold, potentially stifling innovation and driving firms to relocate to jurisdictions with more accommodating regulatory regimes. Second, the regulator is keen to protect the integrity and reputation of the London market.
The United Kingdom has long positioned itself as a leading centre for gold trading, home to major bullion dealers, custodians and clearing houses. By ensuring that tokenised gold can be offered under a clear, proportionate set of rules, the FCA hopes to attract high‑quality participants, encourage best‑practice standards, and prevent a fragmented regulatory landscape that might erode investor confidence. Third, there is a consumer protection angle.
While tokenised gold is generally considered a low‑risk asset class, the technology layer introduces new vectors of risk – for example, smart‑contract vulnerabilities, custodial failures, or operational lapses at the platform level. A tailored framework could mandate specific safeguards, such as independent third‑party audits of smart‑contract code, transparent reporting of vault holdings, and robust segregation of client assets, without subjecting the product to the full suite of fund regulations that were designed for more complex, multi‑asset portfolios.
The proposed exemption would likely be limited in scope. The FCA has indicated that it is not seeking a blanket waiver for all crypto‑related products, but rather a narrowly defined carve‑out that applies only to tokenised gold that meets certain criteria. These criteria could include: * Full backing by physical gold stored in a recognised, insured vault. * Independent verification of the gold reserves on a regular basis, perhaps through a third‑party audit firm.
* Use of a proven, auditable blockchain platform with documented security controls. * Clear governance arrangements for the issuance, redemption and transfer of tokens, ensuring that token holders can reliably convert their digital units back into physical gold on demand. If these conditions are satisfied, the FCA may allow tokenised gold issuers to bypass some of the more onerous fund rules, such as the requirement to produce a full prospectus under the Financial Services and Markets Act 2000 (FSMA) or to comply with the Alternative Investment Fund Managers Directive (AIFMD).
Instead, a lighter‑touch regime could be introduced, focusing on transparency, custody, and anti‑money‑laundering (AML) obligations. The Treasury’s involvement is crucial because any regulatory carve‑out will have implications for tax treatment, customs duties and the broader economic policy agenda.
By working together, the FCA and Treasury aim to craft a regime that balances innovation with stability, ensuring that tokenised gold can be marketed to UK investors without creating regulatory arbitrage opportunities. Industry reaction to the proposal has been cautiously optimistic. Asset managers and fintech firms see the potential exemption as a signal that the UK is willing to adapt its rules to accommodate emerging technology, which could encourage further investment in the sector.
At the same time, some consumer‑advocacy groups have urged the regulator to retain strong safeguards, warning that even a low‑risk asset can become problematic if the underlying technology is not adequately supervised. Internationally, the move mirrors similar efforts in other major financial centres.
For example, Switzerland’s FINMA has issued guidance that allows tokenised commodities to be treated as securities under certain conditions, while the European Securities and Markets Authority (ESMA) is currently reviewing its stance on crypto‑assets and their classification. By aligning its approach with global best practices, the FCA hopes to avoid a regulatory mismatch that could disadvantage UK firms in cross‑border transactions. In summary, the FCA’s consideration of a bespoke exemption for tokenised gold reflects a pragmatic response to the rapid evolution of digital assets.
By collaborating with the Treasury, the regulator aims to design a proportionate set of rules that protect investors, preserve London’s competitive edge, and foster responsible innovation. Should the proposal be adopted, it could set a precedent for how other tokenised commodities – such as silver, platinum or even tokenised real‑estate – are regulated in the future, paving the way for a more flexible and modern financial ecosystem in the United Kingdom.