FCA Considers Special Rules for Tokenized Gold, Exemptions from Fund Regulations in Sight

Digitizing London's Gold Market, Expanding Collateral Utilization

The FCA (Financial Conduct Authority) is collaborating with the Treasury and the Bank of England to explore a unique regulatory framework for tokenized gold.

UK Considers New Path For Tokenized Gold

The UK FCA is preparing to outline possible reforms for tokenized gold products on Monday.

The regulator is considering exemptions from rules governing collective investment schemes and alternative investment funds.

The proposal could make digital gold easier to use across London's wholesale financial markets.

No decision has been made, and the FCA remains open to other regulatory approaches.

The regulator is working with the Treasury and Bank of England on the framework.

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The UK is exploring a new path for tokenized gold products, with the FCA preparing to announce reform proposals on Monday. The FCA is also considering exemptions from existing fund regulations for products that meet certain conditions. Currently, it is unclear whether tokenized gold falls under the rules for CIS (Collective Investment Schemes) or AIF (Alternative Investment Funds). Industry stakeholders have pointed out that this legal ambiguity could hinder product development and restrict access for some investors.

The FCA is considering special measures to exempt tokenized gold products that meet certain conditions from these regulations. However, specific system designs have not yet been finalized, and no final decisions have been made.

Tokenized gold represents digital rights to physical gold stored by issuers or custodians, allowing rights to be transferred without moving the actual gold bars. It is expected that tokenization will facilitate the fragmentation of assets and make transfers between digital markets easier.

According to the World Gold Council, London accounts for about 70% of the global over-the-counter gold trading volume. The FCA is also considering leveraging this market foundation to facilitate the use of gold stored in London as collateral for financial transactions through tokenization.

Considering Collateral Management and Settlement, Towards a Permanent Token Market

The FCA is advancing not only tokenized gold but also the digitization of the broader wholesale market. There is a strong sentiment in the industry that post-trade operations, particularly collateral management, should be a key area for tokenization.

Tokenized collateral is expected to offer advantages such as 24-hour trading, atomic settlement, improved collateral liquidity, and reduced reconciliation efforts. The FCA has indicated that tokenized collateral could enhance turnover rates and support real-time margin calculations.

The Bank of England is also examining whether tokenized assets, including stablecoins, can be treated as eligible collateral within the sterling financial framework. Additionally, the FCA plans to develop a roadmap that includes the issuance and settlement of digital securities, access to central bank funds, and the custody of tokenized assets.

The regulatory authority maintains a technology-neutral stance, stating, "The same risks should have the same regulatory outcomes." The FCA is currently outlining a clear path from sandbox to a permanent authorization system and is also reviewing regulations concerning tokenized gold.

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