UK FCA Weighs Fund Rule Exemption For Tokenized Gold
by Maisie Morrison · BlockonomiTLDR
Table of Contents
- The FCA is weighing whether tokenized gold should be exempt from UK fund rules that cover collective investment schemes and alternative investment funds.
- The regulator is working with the Treasury and Bank of England to study a dedicated framework for tokenized gold and other tokenized commodities.
- The UK holds about 70% of global gold trading volume, and officials want to keep that position as China builds up its own bullion market.
- Tokenized gold could make it easier for banks to use bullion as collateral in financial deals instead of moving physical bars.
- The Bank of England is separately looking at whether tokenized assets, including stablecoins, could count as collateral under its Sterling Monetary Framework.
The UK Financial Conduct Authority is looking at whether tokenized gold products should be exempt from certain fund rules. The regulator plans to share its thinking on Monday.
The FCA is working with the Treasury and the Bank of England on the plan. Together they are studying whether tokenized gold, or tokenized commodities in general, need their own rulebook.
Tokenized gold works by turning ownership rights to physical bullion into digital tokens. The gold itself stays in storage while the tokens can be bought, sold, or transferred by investors.
One option the FCA is considering is a targeted exemption from the UK’s collective investment scheme and alternative investment fund rules. No final decision has been made yet.
Companies in the industry have told the FCA that not knowing whether tokenized gold falls under these rules makes it harder to know which investors can buy the products.
Jon Relleen, the FCA’s director of infrastructure and exchanges, said tokenized gold has become a topic of interest in talks with industry. He said the regulator wants to know if current rules still fit gold markets well.
How Tokenized Gold Could Be Used
Gold is a physical asset, so moving it usually takes more work than moving shares or bonds. The FCA believes tokenization could make bullion easier to divide and transfer through digital markets.
The UK currently handles about 70% of global gold trading, according to the World Gold Council. China has been working to grow its own bullion trading hub, which adds pressure on London to keep its lead.
Tokenized gold products already exist outside the UK. Tether Gold and Pax Gold are two examples, and together they had a combined market value of around $4.4 billion in July.
Rules for these products differ by region. Under the European Union’s Markets in Crypto-Assets regulation, gold-backed tokens fall into the asset-referenced token category, though none had been approved under that rule as of July.
Bank of England Reviews Collateral Rules
Gold-backed tokens are already used as collateral in parts of the digital asset market. By late August, a lending platform called Aave had fully used its $25 million limit for loans backed by Tether Gold.
Another firm, Arch Lending, started accepting tokenized gold for loans at value ratios of up to 75%. These examples show how tokenized bullion is already being tested for real financial use.
The Bank of England is looking at whether tokenized assets, including stablecoins, could count as collateral under its Sterling Monetary Framework. That framework is how the central bank provides funding to financial institutions.
The bank also plans to consult later this year on whether clearinghouses should be allowed to accept tokenized assets as collateral.
This work connects to other UK projects. The government picked HSBC’s Orion platform in July to issue its first digital government bond, known as the Digital Gilt Instrument, targeted for early 2027.
Sixteen firms are currently part of the UK’s Digital Securities Sandbox, where regulators are testing longer trading hours and settlement systems that could run closer to non-stop.
Research cited by UK regulators found that market participants in the United States held about 7% more collateral than needed, just as a safety buffer. Officials believe digital tools could reduce that extra buffer over time.
The FCA will lay out its full proposals on Monday. Any exemption would still need more work with the Treasury before it becomes official policy.