The Financial Conduct Authority (FCA) has signalled that it is seriously considering a new, purpose‑built regulatory framework that would allow tokenised gold – a digital representation of physical gold stored in secure vaults – to operate outside the conventional rules that govern collective investment schemes. This move is being discussed in close partnership with the UK Treasury and is aimed at preserving the competitive edge of London’s financial hub in the rapidly evolving world of digital assets.
At the heart of the proposal is the desire to create a clear, legally recognised exemption for tokenised gold products, which would otherwise be caught by the broad definition of a “fund” under existing legislation such as the Collective Investment Scheme (CIS) rules. Under current law, any pooled investment vehicle that offers shares or units to the public must comply with a heavy regulatory regime covering disclosure, capital adequacy, risk management and investor protection.
While these safeguards are appropriate for traditional funds, they can be overly burdensome for a narrowly defined asset class like digital gold, which essentially mirrors the characteristics of physical bullion – a low‑volatility, store‑of‑value instrument with a long‑standing track record. The FCA’s interest in a bespoke regime stems from several strategic considerations. First, London has long positioned itself as a global centre for precious‑metals trading, with a deep network of banks, custodians and market infrastructure providers.
By offering a regulatory carve‑out for tokenised gold, the UK can attract fintech innovators and established custodial firms that want to issue, trade or settle digital gold tokens on a compliant basis. This would reinforce the city’s status as a bridge between legacy markets and the emerging blockchain‑based ecosystem. Second, the regulator is keen to avoid a scenario where market participants simply relocate to jurisdictions with lighter oversight, potentially exposing investors to higher operational or fraud risk. By providing a clear, proportionate set of rules – for example, requiring that the underlying physical gold be held in recognised vaults, that tokens be fully backed on a one‑to‑one basis, and that robust audit and reporting mechanisms be in place – the FCA can maintain investor confidence while still encouraging innovation.
The proposed exemption would likely include several key conditions. Token issuers would need to demonstrate that each token is backed by an equivalent amount of physical gold that is stored in a secure, insured vault, preferably under the oversight of a recognised custodian. Regular third‑party verification of the gold holdings would be mandatory, with audit reports made publicly available to ensure transparency. Additionally, the FCA would expect clear governance around token creation, redemption and transfer, as well as anti‑money‑laundering (AML) and counter‑terrorism financing (CTF) controls that meet the same standards applied to traditional financial institutions.
From an investor perspective, a dedicated regulatory pathway could bring several benefits. It would provide a legal certainty that tokenised gold products are subject to oversight, reducing the risk of counterfeit or under‑collateralised offerings.
It would also enable retail investors to access digital gold through familiar channels such as brokerage platforms or wealth‑management apps, potentially lowering the cost of entry compared with buying physical bullion and dealing with storage logistics. Industry stakeholders have welcomed the FCA’s openness. Representatives from leading crypto‑asset firms, custodial banks and precious‑metals dealers have all expressed that a tailored framework would give them the confidence to launch compliant tokenised gold products in the UK. Some have highlighted the potential for secondary‑market liquidity – tokenised gold can be traded 24/7 on electronic platforms, offering a level of accessibility that traditional bullion markets cannot match.
However, the proposal is not without challenges. Critics warn that creating a separate regulatory lane could lead to regulatory arbitrage, where firms might try to stretch the definition of “gold‑backed” to include assets with less stringent backing. The FCA will need to craft precise criteria to prevent such loopholes. Moreover, the global nature of blockchain networks means that cross‑border supervision will be essential; coordination with other regulators, such as the European Securities and Markets Authority (ESMA) and the US Securities and Exchange Commission (SEC), may be required to ensure consistent standards.
The consultation process is expected to run over the next few months, during which the FCA will gather feedback from market participants, consumer groups and other public bodies. The authority has indicated that any final rules would aim to be proportionate, technology‑neutral and adaptable to future developments, such as the emergence of multi‑asset tokens or new forms of digital settlement. If adopted, the exemption could set a precedent for other niche digital assets that share characteristics with traditional commodities.
It would demonstrate that regulators can strike a balance between protecting investors and fostering a vibrant, innovative market environment. For London, the move could reinforce its reputation as a forward‑looking financial centre that embraces the potential of blockchain while upholding rigorous standards. In summary, the FCA’s exploration of a bespoke regulatory framework for tokenised gold reflects a strategic effort to protect and grow the UK’s precious‑metals market in the digital age.
By carving out an exemption from standard fund rules, the regulator hopes to provide clarity, encourage responsible innovation, and keep London at the forefront of the global financial ecosystem.