The Financial Conduct Authority (FCA) has signalled that it is actively reviewing whether tokenised gold – a digital representation of physical gold that lives on a blockchain – should be treated differently from traditional investment funds under existing UK legislation. The regulator’s interest stems from a desire to preserve London’s status as a global hub for gold trading and to ensure that the city remains attractive to innovators who are building the next generation of asset‑backed tokens. At the heart of the discussion is the notion that the current framework for collective investment schemes, set out in the FCA’s Fund Rules, may not be the most appropriate fit for assets that are essentially a digital claim on a physical commodity. Under the present regime, any entity that offers a token that represents an interest in gold would have to comply with a suite of requirements designed for conventional funds – ranging from detailed prospectus disclosures to stringent liquidity and valuation rules.
While these safeguards are valuable for protecting investors in traditional fund structures, they can be overly burdensome for tokenised gold products that already have built‑in mechanisms for transparency, real‑time pricing, and custody. The FCA’s approach, therefore, is to explore a bespoke regulatory carve‑out that would recognise the unique characteristics of tokenised gold. In partnership with Her Majesty’s Treasury, the regulator is considering a set of tailored rules that would exempt such tokens from the full breadth of the Fund Rules, while still imposing a proportionate level of oversight to mitigate risks such as fraud, market manipulation, and inadequate custody arrangements. The goal is to strike a balance: on one hand, providing sufficient investor protection; on the other, avoiding a regulatory regime that could stifle innovation or drive business to more permissive jurisdictions.
Why focus on gold? 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, dealers, and custodians.
The city’s reputation for high‑quality gold storage and settlement services has attracted participants from across the globe. As the digital economy evolves, there is growing demand from institutional investors, wealth managers, and even retail clients for a blockchain‑based version of this classic safe‑haven asset.
Tokenised gold promises several advantages: near‑instant settlement, fractional ownership that lowers entry barriers, and the ability to integrate with broader digital asset portfolios. However, the transition from physical bars stored in vaults to digital tokens raises a series of regulatory questions. Who is responsible for verifying that each token is fully backed by an equivalent amount of physical gold?
How can the integrity of the underlying vault be assured on an ongoing basis? What happens if a token holder wishes to redeem their digital claim for physical gold, and how quickly can that be facilitated? These are the sorts of operational and legal nuances that the FCA wants to address through a purpose‑built framework rather than shoe‑horning tokenised gold into the existing fund regime.
In practical terms, the proposed exemption could involve several key components. First, a licensing requirement for issuers of tokenised gold, ensuring that only entities with proven custodial arrangements and robust audit processes are allowed to create and manage the tokens. Second, a set of disclosure obligations tailored to the digital nature of the product – for example, providing real‑time proof‑of‑reserves data, details on the underlying vault locations, and clear redemption procedures. Third, ongoing supervision that focuses on anti‑money‑laundering (AML) and counter‑terrorism financing (CTF) controls, given the high‑value nature of gold and the speed with which blockchain transactions can be moved across borders.
The FCA’s willingness to collaborate with the Treasury reflects a broader policy stance: the UK aims to be a leader in the responsible development of crypto‑assets while maintaining the integrity of its financial system. By crafting a nuanced set of rules for tokenised gold, the regulator hopes to send a clear signal to market participants that London remains a safe, stable, and forward‑looking environment for both traditional and digital forms of wealth preservation. Industry observers note that an exemption, if implemented thoughtfully, could have a ripple effect across the wider crypto‑asset sector. Other tokenised commodities – such as silver, platinum, or even tokenised real‑estate – could look to the gold framework as a template for regulatory treatment.
Moreover, a clear, proportionate approach could encourage more established financial institutions to experiment with tokenisation, knowing that they would not be forced into a one‑size‑fits‑all fund regime that may not reflect the underlying risk profile of the asset. Critics, however, caution that any relaxation of rules must not come at the expense of investor protection. They argue that the allure of blockchain’s transparency can sometimes mask operational risks, such as the possibility of a custodian defaulting or a smart contract vulnerability being exploited.
As a result, the FCA is expected to embed strong safeguards, including mandatory third‑party audits, insurance coverage for custodial failures, and clear pathways for dispute resolution. The timeline for a final decision is still uncertain.
The FCA has indicated that it will publish a consultation paper later this year, inviting feedback from market participants, consumer groups, and other stakeholders. Following the consultation, the regulator will likely draft a set of rules that could be rolled out in phases, allowing issuers to adapt their systems and compliance processes gradually. In summary, the FCA’s exploration of an exemption for tokenised gold reflects a strategic effort to preserve London’s pre‑eminence in the gold market while embracing the technological advances that blockchain offers.
By working closely with the Treasury to design a bespoke regulatory package, the UK aims to provide a clear, predictable environment that protects investors, upholds market integrity, and encourages innovation. If successful, this initiative could position London as a benchmark jurisdiction for the tokenisation of physical assets, setting a precedent that other financial centres may follow in the years to come.