UK Regulator Weighs Fund-Rule Exemption for Tokenized Gold
The UK’s Financial Conduct Authority is considering carving out a dedicated regulatory path for tokenized gold, potentially exempting certain products from the fund rules that currently apply to them by default. The move, developed alongside the Treasury and the Bank of England, is aimed squarely at protecting London’s position as the center of the global physical gold trade as tokenization starts to change how that market actually operates.
What the FCA Is Proposing
In a call for input published Monday, September 14, the FCA said it’s examining whether tokenization could improve how gold is traded, transferred, pledged, and held across UK markets, with a specific focus on gold’s potential use as collateral in wholesale finance. The review centers on tokenized products that represent ownership of physical bullion, backed transparently, with clearly defined ownership rights and reliable redemption arrangements, rather than synthetic or derivative gold exposure.
The core problem the FCA is trying to solve is classification uncertainty. Right now, a tokenized gold product can potentially fall under the UK’s rules for collective investment schemes (CIS) or alternative investment funds (AIF), regulatory frameworks built for pooled investment vehicles, not for a digital representation of a commodity sitting in a vault. Industry participants have told the regulator that this ambiguity, whether a given tokenized gold product counts as a fund at all, is already affecting which investors are willing or able to hold these tokens, since fund-classification triggers a materially different compliance burden than simply holding a commodity-backed instrument would.
One option on the table: a targeted exemption from CIS and AIF rules specifically for tokenized gold products and related market infrastructure. The FCA has been clear that no decision has been made yet, and that it remains open to different approaches depending on what the consultation surfaces. The consultation period runs through October 23.
Jon Relleen, the FCA’s director of infrastructure and exchanges, framed the review as a basic fitness check on existing rules: “Tokenized gold has emerged as an area of interest,” he said, and the regulator is examining whether the current regulatory framework “remains the right fit for gold markets” as tokenization changes how these assets are traded and settled.
Why This Matters: London’s Bullion Market Position
This isn’t a niche technical question for the UK. The country accounts for roughly 70% of global gold trading volume, according to the World Gold Council, a dominant position built over decades around London’s vaulting infrastructure, the London Bullion Market Association’s standards, and the deep liquidity that comes with being the market’s default settlement hub.
That position isn’t uncontested. China has been actively working to build up its own domestic bullion market and trading infrastructure, and the FCA’s review reads at least partly as a defensive move: making sure UK rules don’t become an accidental barrier to gold-market innovation at exactly the moment a competing financial center is investing to capture more of that business itself.
Tokenization’s specific appeal here is practical, not speculative. A tokenized gold product lets ownership of physical bullion, held by an issuer or custodian in a vault, be divided and transferred digitally between investors without the underlying metal ever needing to physically move. For a market built on large, standardized gold bars that are expensive and slow to relocate, being able to trade fractional, verifiable ownership claims digitally is a genuine operational upgrade, particularly for using gold as collateral in financial transactions rather than as a long-term static holding.
That collateral use case is getting attention from more than one direction. The Bank of England is separately examining whether tokenized assets, including stablecoins, could qualify as eligible collateral under its Sterling Monetary Framework, the facility banks use to access central bank liquidity. If tokenized gold ends up fitting into that framework too, the combination of easier fractional transfer and formal recognition as usable collateral could meaningfully increase institutional appetite for holding gold in tokenized form rather than as static, undeployed physical inventory sitting in a vault.
What Happens Next
The FCA’s own language leaves real room for different outcomes: clearer interpretive guidance under existing rules, a targeted exemption specifically for qualifying tokenized gold products, or an entirely bespoke regulatory regime built around this asset class from scratch. Which path the regulator ultimately takes will depend heavily on what industry participants say during the consultation window, which closes October 23.
For gold-market infrastructure providers, custodians, and any firm building tokenized commodity products more broadly, this consultation is worth watching closely regardless of where gold-specific rules land. A workable UK framework for tokenized gold, developed jointly by the FCA, Treasury, and Bank of England, could become a template other jurisdictions look to when they eventually face the same classification problem for tokenized physical assets, whether that’s gold, other commodities, or real-world assets more broadly. The UK, in trying to defend its existing dominance in physical gold trading, may end up writing an early playbook for how regulators handle tokenized commodities generally.