The UK Financial Conduct Authority is considering whether tokenized gold products should be exempt from rules governing collective investment schemes and alternative investment funds. The regulator is working with the Treasury and the Bank of England on a possible framework for tokenized gold and other tokenized commodities, with its initial thinking expected to be published on Monday.

No decision has been made. One option under review is a targeted exemption from the UK’s collective investment scheme and alternative investment fund rules. Industry companies have told the FCA that uncertainty over whether tokenized gold falls within those regimes makes it more difficult to determine which investors can purchase the products.

Tokenized gold represents ownership rights to physical bullion through digital tokens. The gold remains in storage, while the tokens can be bought, sold, or transferred by investors. The FCA and its partners are assessing whether tokenized gold, or tokenized commodities more broadly, require a dedicated rulebook.

Jon Relleen, the FCA’s director of infrastructure and exchanges, said tokenized gold had become a subject of interest in discussions with industry. He said the regulator wanted to assess whether existing rules remained appropriate for gold markets.

Potential Uses for Tokenized Gold

Gold is a physical asset, and moving it generally involves more operational work than transferring shares or bonds. The FCA believes tokenization could make bullion easier to divide and transfer through digital markets. It could also allow banks to use gold as collateral in financial transactions without moving physical bars.

The UK accounts for about 70% of global gold trading volume, according to the World Gold Council. China has been working to expand its own bullion trading hub, increasing pressure on London to retain its position.

Tokenized gold products already operate outside the UK. Tether Gold and Pax Gold are two examples, and their combined market value was around $4.4 billion in July. Regulatory treatment varies by jurisdiction. Under the European Union’s Markets in Crypto-Assets regulation, gold-backed tokens are classified as asset-referenced tokens, although none had been approved under that framework as of July.

Bank of England Examines Collateral Rules

Gold-backed tokens are already being used as collateral in parts of the digital asset market. By late August, the lending platform Aave had fully used its $25 million limit for loans backed by Tether Gold. Arch Lending also began accepting tokenized gold for loans at value ratios of up to 75%.

The Bank of England is separately examining whether tokenized assets, including stablecoins, could qualify as collateral under its Sterling Monetary Framework, through which the central bank provides funding to financial institutions. The bank also plans to consult later this year on whether clearinghouses should be permitted to accept tokenized assets as collateral.

The work is connected to other UK digital-finance initiatives. In July, the government selected HSBC’s Orion platform to issue its first digital government bond, the Digital Gilt Instrument, targeted for early 2027.

Sixteen firms are currently participating in the UK’s Digital Securities Sandbox, where regulators are testing longer trading hours and settlement systems that could operate closer to continuously. Research cited by UK regulators found that market participants in the United States held about 7% more collateral than required as a safety buffer. Officials believe digital tools could reduce that excess over time.

The FCA is expected to set out its full proposals on Monday. Any exemption would require further work with the Treasury before becoming official policy. The report was published by Blockonomi.