The Financial Conduct Authority (FCA) has signalled a willingness to consider a bespoke regulatory solution that would carve out tokenised gold from the standard framework governing collective investment schemes. This move is being driven by a desire to protect London’s position as a leading global hub for both traditional and digital asset finance, and to ensure that the city remains attractive to investors seeking exposure to precious metals in a blockchain‑based form. At the heart of the discussion is the question of how digital representations of gold – often issued on public blockchains as tokens that claim to be fully backed by physical bullion – should be treated under existing fund rules. Under the current regime, any vehicle that pools investors’ money to purchase assets on their behalf is subject to a suite of regulations designed to protect consumers, ensure transparency, and mitigate systemic risk.
These rules include requirements around disclosure, valuation, custody, and the segregation of assets. While these safeguards are appropriate for traditional funds, they can be overly burdensome for tokenised gold products, which already benefit from the inherent security and auditability of blockchain technology. The FCA’s proposal, which is still in the exploratory phase, would involve close coordination with Her Majesty’s Treasury to draft a set of tailored provisions.
These provisions would aim to retain the core consumer‑protection objectives of the existing legislation while recognising the unique characteristics of tokenised gold. For example, the FCA might relax certain reporting obligations if the token issuer can demonstrate that the underlying gold is stored in a reputable, third‑party vault and that the token’s supply is fully auditable on the blockchain.
In addition, the regulator could introduce a lighter‑weight licensing regime that focuses on the integrity of the custodial arrangements and the robustness of the smart‑contract code governing the token, rather than imposing the full suite of fund‑management requirements. One of the key motivations behind this initiative is the desire to defend London’s competitive edge in the precious‑metals market. The United Kingdom has long been a centre for gold trading, storage, and refining, with a well‑established network of vaults, dealers, and financial institutions. As digital assets gain traction, there is a risk that investors might gravitate towards jurisdictions that offer more flexible regulatory treatment for tokenised commodities.
By providing a clear, proportionate framework for digital gold, the FCA hopes to keep capital flowing into London‑based firms that issue, trade, or service tokenised gold products. The potential exemption also aligns with the broader strategic vision of the UK’s financial sector, which seeks to be a pioneer in the responsible development of crypto‑assets.
The FCA has already taken steps to create a regulatory sandbox for innovative fintech solutions, and it has published guidance on crypto‑assets that are classified as “e‑money tokens” or “asset‑referenced tokens.” Tokenised gold falls into the latter category, as its value is directly linked to a physical commodity rather than a fiat currency. By distinguishing tokenised gold from other, more speculative crypto‑assets, the regulator can apply a risk‑based approach that reflects the relative stability and lower volatility of gold. From an investor’s perspective, a clear regulatory carve‑out could bring several benefits.
First, it would provide greater certainty about the legal status of tokenised gold, reducing the risk of regulatory surprises that could affect the value or tradability of the tokens. Second, it would likely lower compliance costs for issuers, which could translate into lower fees for investors.
Third, a proportionate regime could encourage more rigorous third‑party audits and real‑time verification of gold reserves, leveraging the transparency of blockchain to enhance trust. Critics, however, caution that any relaxation of rules must not compromise consumer protection. They argue that even though the underlying asset – gold – is relatively low‑risk, the technology layer introduces new vulnerabilities, such as smart‑contract bugs, cyber‑theft, or operational failures at custodial providers.
To address these concerns, the FCA’s draft framework could incorporate mandatory security standards for smart contracts, requirements for independent code reviews, and obligations for custodians to maintain insurance coverage against loss or theft of the physical bullion. Another point of debate concerns the definition of “tokenised gold” for regulatory purposes.
The market currently hosts a variety of products, ranging from fully collateralised tokens that promise a one‑to‑one claim on physical gold stored in a designated vault, to more speculative tokens that represent a share in a gold‑mining operation or a derivative exposure to gold prices. The FCA will need to draw a clear line, perhaps focusing its exemption on tokens that meet strict collateralisation and audit criteria, while subjecting looser arrangements to the standard fund rules. Internationally, the UK’s approach could set a benchmark for other jurisdictions grappling with the same issue. Some countries have already introduced specific licences for digital asset custodians, while others treat tokenised commodities as securities.
By crafting a nuanced, proportionate regime, the FCA could demonstrate that it is possible to balance innovation with investor safety, potentially influencing policy discussions at the European Union level and beyond. In practical terms, the next steps for the FCA are likely to involve a public consultation, during which industry participants – including token issuers, vault operators, legal advisers, and consumer groups – can submit their views on the proposed carve‑out. The regulator will then analyse the feedback, refine the draft rules, and publish a final set of guidelines.
If approved, the new framework could be rolled out within the next 12 to 18 months, giving market participants time to adjust their compliance processes and align their token structures with the new requirements. Overall, the FCA’s contemplation of an exemption for tokenised gold reflects a broader recognition that the financial regulatory landscape must evolve alongside technological progress. By offering a tailored set of rules that acknowledge the security benefits of blockchain while preserving essential consumer protections, the regulator aims to keep London at the forefront of both traditional and digital gold markets. This balanced approach could attract new capital, foster innovation, and reinforce the city’s reputation as a world‑class financial centre in an era where the line between physical and digital assets is increasingly blurred.