The UK Financial Conduct Authority is developing a regulatory framework for tokenized gold, as Britain looks to modernize its wholesale financial markets and protect London’s dominant position in global bullion trading from growing competition in Asia.
The FCA has held discussions with major banks and other industry participants about how tokenized gold could operate within the UK’s regulatory system, according to the Financial Times. The regulator is particularly examining how blockchain-based representations of physical gold could be used as collateral in wholesale financial transactions, with further regulatory standards expected to be outlined in the coming months.
Tokenized gold typically represents ownership rights over physical bullion held in custody, allowing those rights to be transferred digitally using distributed-ledger technology. Unlike an unbacked cryptocurrency, each token can represent a claim on identifiable physical gold reserves.
The initiative builds on a broader tokenization strategy unveiled by the FCA and Bank of England in May. The regulators said they wanted to support the safe adoption of tokenized securities and modernize how financial assets are issued, traded, settled and held in Britain.
Gold is particularly important to that strategy because London remains the center of the global bullion market, accounting for roughly 70% of worldwide gold trading volumes.
Tokenized Gold Could Become Wholesale Collateral
One of the FCA’s key questions is whether tokenized gold could function efficiently as collateral in institutional markets.
The FCA and Bank of England’s Prudential Regulation Authority have already said they are reviewing the eligibility of tokenized gold and tokenized money-market funds as collateral for uncleared over-the-counter derivatives.
Moving gold onto blockchain infrastructure could make collateral more portable and potentially allow ownership to be transferred more quickly than through conventional market infrastructure. Tokens could also enable fractional ownership while reducing some of the operational friction associated with moving claims on bullion between custodians and counterparties.
There is an important regulatory complication, however. The FCA does not directly regulate ordinary physical gold trading. It does regulate financial instruments linked to gold, including certain derivatives and exchange-traded products, meaning regulators must determine how existing rules should apply when physical bullion is represented by blockchain-based tokens.
The initiative is therefore broader than simply creating another cryptoasset category. It is part of an effort to integrate distributed-ledger technology into established wholesale financial markets.
London Faces Growing Competition From Asia
The timing also reflects competitive pressure on London’s bullion industry. Shanghai and Hong Kong have been expanding their roles as precious-metals hubs, while Asian financial institutions have moved quickly into tokenized gold. HSBC’s tokenized gold product in Hong Kong has already generated more than $2.2 billion of trading across over 276,000 transactions, demonstrating that blockchain-based bullion products can attract meaningful demand.
The World Gold Council has also supported greater digitization, arguing that digital gold could remove constraints associated with bar sizes, vault locations and fragmented settlement infrastructure.
Britain increasingly sees tokenization as an economic competitiveness issue. Chris Woolard, the Treasury-appointed Wholesale Digital Markets Champion and former interim FCA chief executive, has estimated that faster digitization of financial markets could eventually contribute as much as £33 billion annually to UK economic output by 2035.
The FCA and Bank of England are already working with 16 firms through the Digital Securities Sandbox on live issuance and settlement of tokenized assets.
A tokenized-gold framework would extend that modernization effort into one of London’s most important commodity markets. If regulators can establish standards covering custody, ownership, collateral eligibility and settlement without undermining existing safeguards, tokenized bullion could move from a primarily crypto-market product into institutional financial infrastructure.
For London, the stakes extend beyond gold itself. The initiative represents another test of whether the UK can translate its ambitions for tokenized finance into functioning regulated markets before competing financial centers establish their own standards.