What to know:
- UK FCA is exploring rules for tokenised gold in wholesale financial markets.
- The regulator is considering whether tokenised gold could be used as collateral for wholesale trading.
- London faces growing competition from Shanghai and Hong Kong as global bullion hubs.
The UK FCA (Financial Conduct Authority) is exploring the possibilities regarding the regulation of tokenised gold as it considers promoting the development of digital assets in wholesale financial markets in the UK. As reported by the Financial Times, the regulatory body has been having discussions with key players in the industry, including banks.
The UK FCA is also looking for opinions on whether tokenized gold can be accepted as collateral for wholesale trading. These discussions are part of wider attempts by the UK to update its financial markets through the use of blockchain technology and other types of digital technology.
Tokenised gold is digital tokens that stand for the ownership of gold. A custodian or issuer of the tokens stores the gold itself.
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UK FCA Considers Tokenized Gold Framework
People following the talks say that the UK FCA may come up with initiatives to deal with regulations in the coming months. In addition, the regulator is evaluating whether it can regulate tokenized gold since it doesn’t regulate the physical trading of gold.
The UK FCA regulates gold derivatives and exchange-traded funds, which are traded on public markets. However, the regulator has refused to make any comments regarding the ongoing talks.
This year, both the FCA and Prudential Regulation Authority of the Bank of England announced that they would be offering additional regulatory guidance in relation to tokenized collateral under the current framework.
London Faces Growing Competition
The impetus arises as London strives to preserve its status as one of the key centers of gold trading in the world. According to the World Gold Council, London holds up to 70 percent of all gold trade volume in the world.
In addition, China is actively developing Shanghai and Hong Kong as bullion centers. Sources who are privy to the developments noted that London could be overtaken by the other two markets without any further delay.
The UK FCA research on tokenized gold may therefore form part of a bigger initiative to maintain the competitiveness of London’s financial markets. Tokenization would help improve efficiency in gold trading, clearing and settlement processes.
The UK government is also seeking to increase the adoption of blockchain technology in its financial markets. According to Chris Woolard, the UK Treasury’s wholesale digital markets champion, speeding up digital transformation could add up to £33 billion to the UK economy.
Digital Gold Market Gains Interest
The financial sector is already recognizing commercial benefits from the use of digital gold. According to HSBC, its digital gold product, which was introduced in Hong Kong for its retail clients, has seen more than 276,000 trades valued at over $2.2 billion.
Digital gold also promises many advantages, as noted by the World Gold Council. Tokenisation may help increase access to gold by reducing restrictions associated with physical gold bars, vault storage and disjointed settlements.
For London, the UK FCA’s stance on tokenised gold may prove critical in ensuring the city adapts to evolving financial markets and competes against rising digital asset centres in Asia.
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