The UK Financial Conduct Authority is examining whether selected tokenized gold products should receive targeted exemptions from existing fund regulations. The review forms part of wider work with the Treasury and Bank of England on a potential dedicated framework for tokenized gold and, more broadly, tokenized commodities.

In a call for input published on Monday, the FCA stated that uncertainty over classification under collective investment scheme and alternative investment fund rules could limit which investors are willing or able to hold the tokens. The consultation runs until 23 October and will help determine whether clearer guidance, targeted rule changes or a bespoke regime is required.

How Tokenized Gold Works and Why Classification Matters

Tokenized gold products represent ownership rights over physical bullion held by an issuer or custodian. The underlying metal stays in storage while the digital tokens can be transferred between parties. Regulators are focusing on products that offer transparent backing, clearly defined ownership rights and reliable redemption arrangements.

If a product is treated as a collective investment scheme or alternative investment fund, or if its status remains unclear, access for certain investor groups may be restricted. Industry participants have told the FCA that this uncertainty has already constrained development of some use cases in the UK wholesale market.

Policy options under consideration include clarifying how current rules apply, creating a recognized classification for specific regulatory purposes, or introducing legislative changes. A fully bespoke regime for tokenized gold or tokenized commodities remains one possible outcome.

London’s Dominance and the Push for Efficiency

London accounts for around 70 percent of global gold trading volumes according to the World Gold Council. Authorities view tokenization as a way to make physical bullion easier to divide, transfer and deploy as collateral without the operational frictions of moving bars between vaults.

Existing tokenized gold products outside the UK framework, including Tether Gold and Pax Gold, had a combined market capitalization of roughly 4.4 billion dollars in July. These instruments are already used as collateral in parts of the digital asset market. By late August, one major lending platform had fully utilised a 25 million dollar debt ceiling against Tether Gold, while another lender began accepting the tokens at loan-to-value ratios of up to 75 percent.

UK regulators previously identified tokenized gold as a possible collateral asset for uncleared over-the-counter derivatives. The current review extends that work by examining how digital representations of bullion held in London could integrate more smoothly into wholesale market infrastructure.

Broader Tokenization Agenda and Bank of England Role

The tokenized gold consultation was published alongside a separate feedback statement from the FCA and Bank of England on tokenization in wholesale financial markets. The regulators received 123 responses to an earlier call for input. Collateral emerged as the most frequently cited use case, with firms seeking greater clarity on the eligibility of tokenized money market funds, gold and stablecoins.

A tokenization roadmap with target dates for each workstream is scheduled for later this year. The Bank of England is considering whether tokenized assets, including stablecoins, could qualify as collateral under its Sterling Monetary Framework. It also plans to consult on whether central counterparty clearing houses should be permitted to accept tokenized assets.

These steps sit within a wider set of UK initiatives. Sixteen firms are participating in the Digital Securities Sandbox, which is testing longer operating hours and near-continuous settlement. The government has selected a platform for its first digital sovereign bond, targeted for issuance by the end of the first quarter of 2027.

Any exemption from fund rules for tokenized gold would require further work with the Treasury before changes to the regulatory perimeter could take effect. The FCA has emphasised that no final decision has been taken and that it remains open to a range of approaches based on industry feedback.