The Financial Conduct Authority (FCA) has signalled a willingness to rethink the way that tokenised gold is treated under the United Kingdom's existing fund legislation, a move that could have far‑reaching implications for the city’s burgeoning digital‑asset sector. In recent weeks, senior officials at the FCA have been holding intensive discussions with the Treasury to design a bespoke regulatory framework that would carve out digital gold from the traditional fund rules that currently govern collective investment schemes. The objective is to preserve London’s status as a global hub for both conventional finance and the emerging market for crypto‑linked assets, while also ensuring that investors are protected and that the market operates on a level playing field. Tokenised gold – essentially a digital representation of physical gold held in a secure vault and issued on a blockchain – has attracted considerable interest from institutional investors, wealth managers and retail savers alike.
Proponents argue that it combines the time‑tested stability of the precious metal with the speed, transparency and fractional ownership capabilities of blockchain technology. However, the existing regulatory regime treats tokenised gold in much the same way as any other crypto‑asset, subjecting it to the same stringent requirements that apply to high‑risk tokens, including anti‑money‑laundering checks, capital adequacy rules and, in many cases, the need to be authorised as a regulated investment product.
Critics of the current approach contend that applying the same rules to tokenised gold as to speculative crypto‑tokens creates unnecessary friction and could stifle innovation. They point out that gold, whether held in a vault or represented digitally, has a long‑standing track record as a store of value and a hedge against inflation.
By subjecting it to the same compliance burdens as more volatile digital assets, the FCA may inadvertently discourage firms from developing compliant, mainstream products that could broaden access to gold investments for a wider audience. In response, the FCA has proposed a “light‑touch” exemption that would remove tokenised gold from the scope of the collective investment scheme (CIS) rules. Under the proposed framework, tokenised gold products would no longer need to comply with the full suite of fund‑specific regulations, such as the requirement to produce a prospectus that meets the European Union’s UCITS standards or to adhere to the same liquidity and diversification mandates that apply to traditional funds.
Instead, they would be governed by a set of targeted rules focused on custody, valuation and disclosure, mirroring the regulatory treatment of physical gold ETFs that already exist in the market. The Treasury’s involvement is crucial because any deviation from the standard fund regime would need to be reflected in secondary legislation or a specific amendment to the Financial Services and Markets Act.
By collaborating closely with the Treasury, the FCA hopes to ensure that the new regime is both legally sound and aligned with broader government policy aimed at fostering fintech innovation. The partnership also allows for a coordinated approach to international regulatory alignment, ensuring that the UK’s rules on tokenised gold do not create arbitrage opportunities or regulatory gaps that could be exploited by bad actors.
If implemented, the exemption could accelerate the launch of new tokenised gold products across the UK, encouraging both domestic and foreign firms to set up operations in London. Asset managers could offer investors the ability to buy and sell fractional shares of gold instantly, with transactions settled on a blockchain in real time, while still benefiting from the robust legal protections that come with a regulated environment.
Moreover, custodians would be required to maintain rigorous standards for the physical storage of the underlying metal, providing an additional layer of security that addresses concerns about the “digital‑only” nature of crypto assets. Consumer protection remains a core priority for the FCA.
Even with a lighter regulatory touch, firms offering tokenised gold would still need to meet strict anti‑money‑laundering (AML) and know‑your‑customer (KYC) obligations, ensure accurate and frequent price reporting, and maintain transparent fee structures. The regulator has also indicated that it will monitor the market closely for signs of systemic risk, such as concentration of holdings in a few large custodians or sudden liquidity squeezes that could affect price stability. Industry observers have welcomed the FCA’s proactive stance, noting that it signals a willingness to adapt existing frameworks to the realities of digital finance rather than imposing a one‑size‑fits‑all approach. “This is a pragmatic solution that recognises the unique characteristics of tokenised gold while preserving the integrity of the broader financial system,” said a senior analyst at a leading investment bank.
“It should give investors confidence that they can access gold in a modern, digital format without compromising on safety or regulatory oversight.” Nevertheless, some stakeholders caution that the exemption must be carefully drafted to avoid unintended loopholes. They argue that clear definitions of what constitutes a tokenised gold product, robust auditing of the underlying physical reserves, and strict governance of the smart‑contract code that governs token issuance are essential to prevent fraud or misrepresentation. In summary, the FCA’s contemplation of an exemption for tokenised gold from the standard fund rules reflects a broader trend of regulators seeking to balance innovation with stability. By working hand‑in‑hand with the Treasury to craft a bespoke regulatory package, the UK aims to protect its reputation as a leading financial centre while opening the door for a new generation of gold‑backed digital assets.
If the proposal moves forward, it could set a precedent for how other tokenised commodities are treated, potentially reshaping the landscape of digital investment products for years to come.