Tokenized gold entered the UK regulatory spotlight on Monday as the Financial Conduct Authority considered easing fund rules for selected digital bullion products. The review could reshape access. No final exemption has been approved yet.
According to a report, the FCA plans possible reforms with the Treasury and Bank of England across Britain’s wholesale financial markets. One option is a targeted exemption from collective investment scheme and alternative investment fund rules. Officials say the proposal remains under consideration.
Industry participants say uncertainty over CIS and AIF classifications can restrict access to some products. They also warn that unclear treatment may discourage development before firms launch new products. The FCA is examining whether existing frameworks remain suitable.
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What Is the FCA Considering for Tokenized Gold?
However, the key issue here is whether a particular set of products will benefit from an exception that will provide some sort of relief. Such relief will relate to particular structures or certain segments of the gold market infrastructure.
Tokenized gold is the virtual claim on the physical gold that is kept by the custodian or issuer. While the gold remains kept in the safe deposit box, the tokens are transferred virtually.
The difference is important for the review. The precious metal still needs secure storage, custody arrangements, and ownership rights. Regulatory authorities will have to determine whether fund rules apply to products that have underlying physical assets.
Why Are Existing Fund Rules Under Review?
The review stems from concerns raised by banks, markets, and other industry players about whether certain tokenized bullion products should be classified under the CIS or AIF regime and how this classification may impact investor access.
The FCA has not yet stated that all tokenized gold products are entitled to a different treatment. On the contrary, the regulator is considering whether a specific exemption applies to certain tokenized bullion products.
The regulator has engaged in conversations about digital bullion standards with major financial institutions. This includes, among others, the possibility of using blockchain gold as collateral. The consultations represent part of its efforts to upgrade wholesale market infrastructure.
The head of Infrastructure and Exchanges at the FCA, Jon Relleen, has said that digital gold keeps popping up in industry conversations. In addition to considering whether the existing regulations are still relevant, the regulator is exploring possible improvements in market efficiency.
“We’re keen to understand whether existing regulatory frameworks remain the right fit for gold markets and how innovation could strengthen the efficiency and competitiveness of UK markets,” said Jon Relleen.
Who Could Be Affected by the Proposed Changes?
Both banks, custodians, issuers, and bullion dealers, as well as institutions investing in these products, might get affected by the proposed framework. The result of the regulation classification might affect the availability of these products on the market.
Investors will have to evaluate each product’s structure. The backing, custody, redemption, and issuer requirements may differ across products. Having a connection to physical gold does not mean that the structure of these products is always similar.
Existing products, which will show how the market works in the absence of a specific UK regulatory framework. Tether Gold and Pax Gold offer blockchain-based tokens that are associated with the physical bullion. These tokens enable the trading of digital claims to the stored metal.
The regulatory treatment also varies across jurisdictions. The EU’s regulation for Markets in Crypto-Assets categorizes gold-backed tokens as asset-referenced tokens. The United Kingdom is exploring another way through its financial regulatory system.
Where Does London Stand in Global Bullion Markets?
London continues to be one of the largest centers for international gold transactions and custody. According to data from the World Gold Council, the United Kingdom accounts for around 70% of international gold trade volume. This makes the regulatory assessment especially significant.
UK regulatory bodies are reviewing whether tokenization of gold stored in London may lead to increased market liquidity. Tokenized assets will enable faster transfer of the asset either for trading or collateral purposes, while the underlying physical gold will remain within the existing custody infrastructure.
Additionally, China is also building up its international footprint in the world of bullion markets. Increased competition puts pressure on the city to maintain effective and advanced infrastructure. The UK regulators are reviewing the possibility of using tokenization in this regard.
But apart from improving market accessibility through tokenization, regulators are also considering how digital assets can improve clearing, settlement, and collateral transfers. Improved clearing and settlement procedures may help cut down on processing time and thus decrease working capital requirements of the companies.
When Could the UK Framework Take Shape?
Proposals are anticipated to be laid out by the FCA while the discussions with the Treasury and the Bank of England will continue. There is more work to be done before any exemptions come into play. Formal announcements concerning the implementation timeline have not been made.
The review is happening amid a number of other efforts to tokenize assets in the UK. The government has chosen HSBC’s Orion system to issue their first digital sovereign bond. The Digital Gilt Instrument is scheduled for release in March 2027.
It will work within the FCA and the Bank of England’s Digital Securities Sandbox. Additional digital gilt offerings will be possible after the first issuance. The project will help assess tokenized securities under supervision.
UK regulators are also analyzing tokenized types of money. Bank of England officials believe that the future infrastructure of payments can handle tokenized bank deposits, regulated stablecoins, and maybe even a digital pound. Testing with existing infrastructures is still underway.
As for tokenized gold, the core concern is the status of the asset in the context of regulation. Regulatory authorities have to determine whether the asset will be regulated according to the rules for investment funds or whether an exemption will apply.
The decision will influence the speed of entry of tokenized gold into the wholesale financial infrastructure of London.
The outcome may also determine the role of the city in commodity trading when other markets become modernized. For now, the FCA’s review is just a proposal for the next stage of consultations.
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