The Financial Conduct Authority (FCA) has signalled a willingness to rethink how digital assets, specifically tokenised gold, are treated under the United Kingdom’s existing fund‑regulation framework. In recent discussions with the Treasury, the regulator has outlined a potential bespoke regime that would carve out tokenised gold from the traditional rules that govern collective investment schemes. This move is being framed as a defensive measure aimed at preserving London’s status as a leading hub for financial innovation and for the broader asset‑management industry. ### Why tokenised gold matters Tokenised gold is a digital representation of physical gold that is stored in a secure vault and issued on a blockchain.
Each token is typically backed one‑to‑one by an ounce of gold, providing investors with the convenience of a crypto‑style asset while retaining the intrinsic value of a precious metal. The technology promises faster settlement, fractional ownership, and global accessibility, all of which could attract a new class of investors who are looking for both the stability of gold and the flexibility of digital finance. The appeal of tokenised gold has grown rapidly in recent years.
Asset‑management firms, fintech start‑ups, and even traditional banks have begun experimenting with issuing or trading these tokens. In the UK, the London bullion market has long been a cornerstone of global gold trading, and the emergence of tokenised gold presents both an opportunity and a challenge: the market could be revitalised by digital innovation, but only if the regulatory environment is clear and supportive. ### The current regulatory landscape At present, the FCA treats most crypto‑assets as falling under the umbrella of “specified investments” or “regulated activities,” meaning that any firm dealing with them must be authorised and comply with a suite of anti‑money‑laundering (AML) and consumer‑protection rules. However, tokenised gold sits in a grey area.
While the underlying commodity is a regulated financial instrument, the token itself is a digital representation that could be classified as a security, a commodity, or a hybrid product, depending on its structure and the way it is marketed. Under the existing collective investment scheme (CIS) rules, any fund that pools investors’ money to purchase assets must meet stringent requirements concerning diversification, valuation, and disclosure. Applying these rules to a tokenised gold fund could prove cumbersome, potentially stifling innovation and driving activity to jurisdictions with more flexible regimes. ### The FCA’s proposed exemption The FCA’s tentative proposal would create a specific carve‑out for tokenised gold, allowing it to be excluded from the full suite of CIS regulations.
In practice, this could mean that a fund or investment vehicle that solely holds tokenised gold would not need to satisfy the same diversification or liquidity tests required of traditional funds. Instead, the regulator would focus on a narrower set of safeguards, such as ensuring that the tokens are fully backed by physical gold held in reputable vaults, that the custodial arrangements are robust, and that there is transparent reporting to investors. A key element of the proposal is the collaboration with the Treasury to develop a bespoke regulatory framework.
This partnership would enable the creation of clear standards for issuance, custody, and redemption of tokenised gold, as well as guidance on AML and counter‑terrorist‑financing (CTF) obligations. By establishing a dedicated rulebook, the FCA hopes to provide certainty for market participants while maintaining the high level of consumer protection that characterises the UK’s financial sector. ### Potential benefits for the London market 1.
**Retention of capital** – By offering a regulatory path that is both clear and proportionate, the FCA aims to keep tokenised gold projects within the UK rather than seeing them migrate to more permissive jurisdictions such as Switzerland or Singapore. Retaining these activities helps preserve jobs, tax revenue, and the overall vibrancy of the London financial ecosystem. 2.
**Innovation leadership** – A well‑defined framework could position London as a global centre for tokenised commodity finance. This would attract not only gold‑related projects but also other tokenised assets, fostering a broader ecosystem of digital securities, custodians, and service providers.
3. **Investor confidence** – Investors often shy away from unregulated crypto‑assets due to concerns over fraud, custody risk, and lack of recourse. A regulator‑approved exemption would signal that tokenised gold is subject to oversight, thereby boosting confidence and potentially expanding the investor base to include more conservative, institutional participants. 4.
**Operational efficiency** – Removing the need to comply with the full CIS regime could reduce compliance costs for firms, allowing them to allocate resources toward product development, technology upgrades, and customer service. ### Risks and safeguards While the FCA’s approach is designed to be proportionate, it is not without risk. The primary concerns revolve around custody integrity, valuation transparency, and the potential for market manipulation. To mitigate these risks, the proposed framework would likely include: - **Third‑party audits** of vault holdings to confirm that each token is fully backed by physical gold.
- **Real‑time reporting** of token supply and redemption activity on a public ledger, enhancing market transparency. - **Strict AML/CTF checks** on all participants, ensuring that the digital nature of the asset does not become a conduit for illicit finance.
- **Clear redemption mechanisms** that allow token holders to convert their digital tokens back into physical gold or fiat currency under defined conditions. ### International context Globally, regulators are grappling with how to classify and supervise tokenised assets.
The European Union, for example, is moving towards a comprehensive Markets in Crypto‑Assets (MiCA) regime that will address many of the same issues. In the United States, the Securities and Exchange Commission (SEC) has taken a more cautious stance, often treating tokenised commodities as securities subject to rigorous disclosure requirements.
By proactively shaping a tailored regime, the FCA hopes to stay ahead of the curve, offering a model that could influence other jurisdictions. If successful, London could become a benchmark for balanced regulation—protecting investors while fostering innovation. ### Next steps The FCA has indicated that it will publish a formal consultation paper later this year, inviting feedback from industry participants, consumer groups, and other stakeholders. The consultation will likely cover the precise scope of the exemption, the required custodial standards, and the reporting obligations for tokenised gold issuers.
Stakeholders are encouraged to submit their views, highlighting any practical concerns or suggestions for improvement. The FCA has stressed that the ultimate goal is to create a framework that is both flexible enough to accommodate technological advances and robust enough to safeguard market integrity.
### Conclusion The FCA’s contemplation of an exemption for tokenised gold from traditional fund rules reflects a broader shift in how regulators are approaching digital assets. By working closely with the Treasury to craft a bespoke, proportionate regime, the UK aims to protect its historic role as a global gold market while embracing the efficiencies and accessibility offered by blockchain technology.
If the proposal is adopted, it could usher in a new era for tokenised commodities, positioning London at the forefront of a rapidly evolving financial landscape.