The Financial Conduct Authority (FCA) has signalled that it is actively reviewing whether tokenised gold – a form of digital asset that represents physical gold on a blockchain – should be treated differently from other investment products under the United Kingdom’s existing fund rules. The regulator’s interest stems from a desire to preserve London’s status as a leading global hub for gold trading, while also ensuring that investors are protected in an environment that is rapidly evolving with new technology. At the heart of the discussion is the question of whether the current legislative framework, which was designed for traditional assets such as equities, bonds and physical commodities, is fit for purpose when it comes to digital representations of gold. Tokenised gold is essentially a digital certificate that is backed 1:1 by physical gold stored in a vault.
Each token can be transferred, split, or combined on a blockchain, offering speed, transparency and fractional ownership that conventional gold bars cannot provide. However, the same rules that govern traditional collective investment schemes (CIS) and alternative investment funds (AIF) impose a range of compliance, reporting and capital‑adequacy requirements that may be unnecessary – or even counter‑productive – for a product that is already collateralised by a tangible, highly liquid asset. The FCA’s exploratory work is being conducted in partnership with Her Majesty’s Treasury, which brings fiscal and macro‑economic considerations into the equation.
Both bodies recognise that London’s gold market is a cornerstone of the city’s financial ecosystem, contributing billions of pounds in turnover each year and attracting a diverse set of participants ranging from sovereign wealth funds to private investors. If the regulatory burden on tokenised gold were to become too heavy, market participants might look to other jurisdictions that offer a more proportionate approach, potentially eroding the city’s competitive edge.
A bespoke regulatory framework could take several forms. One possibility is to create a specific exemption that removes tokenised gold from the definition of a “collective investment scheme” under the Financial Services and Markets Act 2000.
Such an exemption would mean that firms dealing in tokenised gold would not need to obtain a full fund authorisation, nor would they be subject to the same risk‑management and liquidity‑testing obligations that apply to traditional funds. Instead, they could be overseen under a lighter regime that focuses on the custody of the underlying physical gold, the integrity of the blockchain ledger, and anti‑money‑laundering (AML) safeguards.
Another avenue being considered is the introduction of a new category of regulated activity that sits somewhere between a standard investment service and a full‑blown fund. This hybrid model would require firms to demonstrate robust governance over the token issuance process, maintain transparent audit trails, and ensure that the physical gold backing each token is regularly verified by an independent third party. The FCA could also impose limits on the leverage that can be applied to tokenised gold, thereby curbing excessive risk‑taking while still allowing investors to benefit from the efficiency of digital trading.
Stakeholders have voiced a range of viewpoints. Proponents argue that a proportionate regime would encourage innovation, attract fintech firms, and broaden access to gold investment for retail customers who might otherwise be excluded due to high minimum purchase thresholds.
They also point out that tokenisation can enhance market liquidity by enabling near‑instant settlement and reducing the friction associated with physical delivery. Conversely, some consumer‑advocacy groups caution that any relaxation of rules must not come at the expense of investor protection. They stress the importance of clear disclosure about the custodial arrangements, the identity of the vault providers, and the legal enforceability of the token‑gold link.
There are also concerns about cyber‑security, as a breach of the underlying blockchain could jeopardise the ownership records of thousands of token holders. Internationally, regulators in other major financial centres are watching the FCA’s deliberations closely.
The European Union, the United States and Singapore have all begun to outline how digital assets that are tied to real‑world commodities might be regulated. A coordinated approach could help prevent regulatory arbitrage, where firms bounce between jurisdictions to exploit the most permissive rules. If the FCA proceeds with an exemption, the next steps would likely involve a public consultation, followed by the drafting of detailed rules and guidance.
The consultation period would give market participants, legal experts and consumer groups the opportunity to comment on the proposed scope, the safeguards required, and the reporting obligations that would remain in place. In summary, the FCA’s consideration of an exemption for tokenised gold reflects a broader strategic aim: to safeguard London’s pre‑eminence in the gold market while adapting the regulatory landscape to accommodate the realities of digital finance.
By crafting a tailored framework that balances innovation with prudential oversight, the regulator hopes to keep the city attractive to both traditional gold dealers and emerging fintech firms, ensuring that investors can continue to rely on a stable, transparent, and secure environment for their gold‑linked investments.