The Financial Conduct Authority (FCA) has signalled that it is actively examining the possibility of creating a specialised regulatory pathway for tokenised gold, a move designed to protect the United Kingdom’s pre‑eminent position as a global hub for precious‑metal trading. In recent months, the FCA has been holding a series of consultations with the Treasury, industry participants, and other stakeholders to assess whether the existing fund rules – which were originally drafted for traditional, paper‑based assets – are suitable for the emerging class of digital gold tokens that are gaining traction among investors worldwide.
Tokenised gold, at its core, is a digital representation of physical gold that is recorded on a blockchain or other distributed ledger technology. Each token is typically backed one‑to‑one by a specific amount of physical bullion stored in a secure vault, often under the oversight of a recognised custodian.
The token can be transferred, split, or combined with a speed and transparency that far exceeds the capabilities of conventional gold certificates or physical delivery mechanisms. Because of these characteristics, tokenised gold has attracted interest from a broad spectrum of market participants – from retail investors seeking a low‑cost entry point into the gold market, to institutional players looking for more efficient settlement and custody solutions.
Despite the clear benefits, the regulatory landscape for tokenised gold remains fragmented. In the United Kingdom, the majority of investment funds are governed by the Collective Investment Scheme (CIS) rules, which impose strict requirements on asset valuation, liquidity, risk management, and disclosure.
These rules were designed with traditional securities, bonds, and commodities in mind, and they do not easily accommodate the unique features of blockchain‑based tokens. For example, the CIS regime mandates daily net asset value (NAV) calculations based on market prices that are readily observable. In the case of tokenised gold, price discovery can be more complex, as it may involve multiple exchanges, differing custody arrangements, and varying degrees of regulatory oversight.
The FCA’s proposal to carve out an exemption for tokenised gold would therefore create a bespoke framework that recognises the asset’s hybrid nature – part physical commodity, part digital token. Under such a framework, tokenised gold could be excluded from certain fund‑level requirements, such as the stringent liquidity tests that currently apply to all CIS assets. In exchange, the FCA would likely impose a set of tailored safeguards to ensure investor protection.
These could include mandatory third‑party audits of the underlying vaults, real‑time verification of token‑to‑gold ratios, and robust anti‑money‑laundering (AML) controls that are calibrated to the speed and anonymity of blockchain transactions. One of the primary motivations behind the FCA’s initiative is to preserve London’s status as the world’s leading gold trading centre.
Historically, the city has hosted a dense network of bullion banks, refiners, and custodians, and it processes a significant share of global gold flows. The rise of tokenised gold threatens to divert some of that activity to jurisdictions that adopt more permissive or clearer regulatory regimes. By offering a clear, UK‑specific set of rules, the FCA hopes to give market participants confidence that they can operate within a predictable legal environment, thereby encouraging them to keep their tokenised gold operations anchored in London. The Treasury’s involvement is also crucial, as any regulatory carve‑out will have implications for tax treatment, customs duties, and broader financial stability considerations.
A coordinated approach between the FCA and the Treasury can ensure that tokenised gold is not only regulated appropriately at the fund level but also aligns with the United Kingdom’s overall financial policy objectives. For instance, the Treasury may decide to extend favourable tax treatment – such as capital gains exemptions that currently apply to physical gold held in certain accounts – to eligible tokenised gold holdings, further enhancing the attractiveness of the UK market.
Industry reaction to the FCA’s exploratory work has been largely positive. Asset managers, custodians, and fintech firms have expressed relief that regulators are recognising the distinct risk profile of digital gold tokens rather than shoe‑horning them into legacy frameworks. Many have highlighted the need for clear guidance on issues such as custody segregation, token issuance standards, and the treatment of token splits or mergers. They argue that a well‑crafted exemption would not only protect investors but also stimulate innovation, allowing UK firms to develop new products – such as gold‑backed stablecoins or hybrid investment vehicles that combine tokenised gold with other digital assets.
However, some critics caution that any exemption must be carefully calibrated to avoid creating regulatory arbitrage opportunities. If tokenised gold is exempt from certain fund rules while comparable traditional assets are not, there could be incentives for fund managers to reclassify holdings purely for regulatory advantage, potentially undermining market integrity. The FCA has acknowledged these concerns and indicated that any bespoke framework would include monitoring mechanisms to detect and address such behaviour.
Looking ahead, the FCA plans to publish a detailed consultation paper later this year, outlining the proposed scope of the exemption, the specific regulatory requirements that would apply, and the timeline for implementation. Stakeholders will be invited to comment on the draft proposals, providing feedback on practical issues such as the verification of vault holdings, the role of third‑party auditors, and the interoperability of token standards across different blockchain platforms. If the FCA’s plans come to fruition, the United Kingdom could become a benchmark jurisdiction for the regulation of tokenised commodities, setting a precedent that other financial centres may follow.
By balancing flexibility with robust investor safeguards, the FCA aims to nurture a vibrant ecosystem for digital gold while ensuring that the traditional strengths of the London market – its depth, transparency, and regulatory credibility – are preserved for the next generation of investors.