The Financial Conduct Authority (FCA) has signalled a willingness to rethink how the United Kingdom treats tokenised gold within its existing financial regulatory framework. In recent weeks, senior officials from the FCA have been holding a series of high‑level discussions with the Treasury, aiming to develop a bespoke set of rules that would effectively carve out digital gold from the suite of regulations that normally apply to collective investment schemes, such as authorised funds and UCITS.
The objective of this initiative is to preserve and enhance London’s position as a global hub for innovative financial products, while also ensuring that investors are protected and market integrity is maintained. ## Why tokenised gold matters to London Tokenised gold, sometimes referred to as digital gold, is a form of asset‑backed cryptocurrency where each token represents a specific amount of physical gold held in a secure vault.
The token can be transferred, stored, and traded on blockchain platforms, offering the speed and transparency of digital assets combined with the long‑standing store‑of‑value reputation of gold. Over the past few years, a growing number of fintech firms and traditional precious‑metal dealers have launched tokenised gold products, attracting both retail and institutional investors who seek a convenient, low‑cost way to gain exposure to the metal without dealing with the logistical complexities of physical storage. London has long been a centre of excellence for gold trading, home to the London Bullion Market Association (LBMA) and a dense network of banks, custodians, and clearing houses. By embracing tokenised gold, the city can extend its legacy in the precious‑metal market into the digital age, offering a seamless bridge between legacy markets and the emerging world of distributed ledger technology.
However, the existing fund rules—designed for traditional pooled investment vehicles—present a number of challenges when applied to tokenised gold schemes. These rules impose strict requirements on liquidity, valuation, disclosure, and risk management that may not be appropriate for a product that is essentially a digital representation of a physical commodity.
## The regulatory friction points One of the primary pain points for tokenised gold issuers is the classification of their tokens as “units of an investment fund.” Under the current framework, any collective investment scheme that pools investor money to purchase assets must be authorised by the FCA, adhere to stringent capital adequacy standards, and submit regular reporting on asset valuation and risk exposure. For tokenised gold, the underlying asset is a physical, highly liquid commodity, and the token itself is simply a ledger entry confirming ownership.
Treating each token as a fund unit would therefore create unnecessary compliance burdens, increase costs for issuers, and potentially slow down the speed at which new products can be launched. Another area of concern is the valuation methodology.
Traditional funds often rely on periodic net asset value (NAV) calculations, which can be complex and may involve subjective pricing inputs. In contrast, gold prices are quoted continuously on major exchanges, and the value of a token can be derived almost in real time from these market prices.
Imposing fund‑style NAV reporting on tokenised gold could result in duplicated effort and could even produce valuation mismatches that confuse investors. Finally, there are liquidity considerations. Fund regulations typically require a certain level of daily or weekly liquidity to protect investors from being unable to redeem their holdings.
Tokenised gold, however, can be transferred peer‑to‑peer on a blockchain at any time, and many platforms already provide secondary markets where tokens can be bought or sold instantly. Applying traditional fund liquidity rules could therefore be both redundant and restrictive. ## The proposed bespoke framework In response to these challenges, the FCA and the Treasury are exploring a bespoke regulatory regime that would exempt tokenised gold from the standard fund rules while still imposing a proportionate set of safeguards. The key elements under discussion include: 1.
**Clear definition and classification** – Establishing a specific legal category for tokenised gold that distinguishes it from conventional investment funds, possibly treating it more like a commodity‑linked security. 2.
**Proportional disclosure requirements** – Requiring issuers to publish transparent information about the underlying gold holdings, custodial arrangements, and the technology stack, without mandating full fund‑style prospectuses. 3.
**Real‑time pricing standards** – Mandating that token prices be tied directly to recognised spot gold prices from recognised market data providers, ensuring that investors always have an accurate view of value. 4. **Custody and segregation rules** – Insisting that the physical gold backing the tokens be held by an FCA‑regulated custodian, with strict segregation from the custodian’s own assets to protect against misuse.
5. **Anti‑money‑laundering (AML) and counter‑terrorism financing (CTF) controls** – Applying the same robust AML/CTF obligations that the FCA already enforces on other digital‑asset businesses, to prevent illicit use of tokenised gold. 6.
**Governance and oversight** – Requiring a governance framework that outlines how the token issuance, redemption, and burn processes operate, and establishing a supervisory reporting line to the FCA for ongoing monitoring. By focusing on these targeted measures, the FCA hopes to strike a balance: providing enough regulatory certainty to attract innovators while avoiding the heavy‑handedness of a one‑size‑fits‑all fund regime.
## Potential impact on the market If the bespoke framework is implemented, the immediate effect would likely be a surge in new tokenised gold offerings from both start‑ups and established precious‑metal firms. The reduced compliance costs would make it easier for smaller players to enter the market, fostering competition and potentially driving down fees for end‑users. Moreover, the clear regulatory carve‑out would give institutional investors—such as pension funds, family offices, and sovereign wealth funds—greater confidence to allocate capital to tokenised gold as part of a diversified portfolio.
In the longer term, the move could serve as a template for other tokenised commodities, such as silver, platinum, or even tokenised oil. A successful regulatory sandbox for digital gold would demonstrate that the UK can adapt its financial rules to accommodate emerging technologies without compromising investor protection.
This, in turn, would reinforce London’s reputation as a forward‑looking financial centre, capable of bridging the gap between legacy markets and the blockchain‑driven future. ## International context and competition Other jurisdictions are also grappling with how to regulate tokenised assets.
The European Union, through its MiCA (Markets in Crypto‑Assets) framework, is set to introduce a harmonised regime for crypto‑assets, including asset‑referenced tokens. However, MiCA’s approach is more generic and does not provide a specific carve‑out for tokenised gold.
In the United States, the Securities and Exchange Commission (SEC) has taken a cautious stance, often treating tokenised commodities as securities unless a clear exemption is granted. By contrast, the FCA’s willingness to craft a tailored regime could give the UK a competitive edge, positioning London as a more attractive domicile for tokenised commodity issuers. ## Next steps and timeline The FCA has indicated that it will publish a consultation paper later this year, inviting feedback from industry participants, consumer groups, and other stakeholders.
Following the consultation, the regulator expects to finalize the rules within the next 12‑18 months, subject to parliamentary approval where required. Companies interested in launching tokenised gold products are advised to begin engaging with the FCA early, to ensure that their business models align with the forthcoming requirements and to help shape the final regulatory shape. ## Conclusion The initiative to exempt tokenised gold from traditional fund regulations reflects the FCA’s broader strategy of fostering innovation while safeguarding market integrity.
By developing a bespoke, proportionate framework, the regulator aims to preserve London’s historic role as a gold‑trading capital, while simultaneously embracing the efficiencies and transparency offered by blockchain technology. If successful, the new regime could unlock a wave of digital‑gold products, attract fresh capital, and set a precedent for the regulation of other tokenised commodities worldwide. The coming months will be critical as the FCA and Treasury fine‑tune the details, but the overall direction signals a clear commitment to keeping the UK at the forefront of financial innovation.