FCA weighs exempting tokenised gold from UK fund rules

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FCA considers tokenised gold exemption

Highlights

FCA, in consultation with the Treasury and Bank of England, is considering exempting tokenised gold from UK CIS and AIF rules, with a decision pending.
Tokenised gold, representing digital ownership of physical bullion, could improve transferability and efficiency, potentially enhancing UK market competitiveness versus rivals like China.
The UK, handling 70 per cent of global gold trading, may broaden tokenisation to post-trade functions to free up capital and collateral, with possible inclusion of tokenised assets in the Sterling Monetary Framework and CCP clearing.

Proposed regime for tokenised bullion

As reported by the Financial Times, the Financial Conduct Authority is set to outline on Monday a possible exemption for tokenised gold from UK collective investment scheme and alternative investment fund rules. The regulator says it is considering, with the Treasury and the Bank of England, whether a bespoke regime should be created for tokenised gold or tokenised commodities more broadly.

Tokenised gold refers to digital assets that represent ownership rights over physical bullion held by an issuer as backing for the tokens. The FCA says tokenisation could make a traditionally physical and operationally complex asset easier to divide and transfer across digital markets, unlike shares or debt securities that already move through mature electronic market infrastructure.

Industry participants have told the watchdog that uncertainty over whether tokenised gold falls within CIS or AIF rules could limit access for some investors. FCA officials say no decision has been made, but the regulator is keeping an open mind on a targeted exemption for certain tokenised gold products or related market infrastructure.

Jon Relleen, the FCA’s director of infrastructure and exchanges, says discussions with industry have identified tokenised gold as an area of interest. He adds that the regulator wants to assess whether current frameworks remain suitable for gold markets and how innovation could improve the efficiency and competitiveness of UK markets.

Broader push to free up capital and collateral

The proposal forms part of a wider effort by UK authorities to encourage tokenisation across wholesale financial markets. In a separate paper due on Monday, the FCA and the Bank of England say market participants see the biggest opportunity in making post-trade functions such as clearing and settlement more efficient, helping to release capital and collateral.

The UK handles about 70 per cent of global gold trading volumes, according to the World Gold Council, but London is facing a competitive challenge from China’s efforts to build itself into a bullion hub. The FCA’s interest in tokenised gold therefore carries implications not only for regulation, but also for the UK’s standing in a strategically important commodities market.

Citing research that found U.S. market participants hold an average of 7 per cent more collateral than necessary as a safety buffer, the FCA and the Bank of England say the industry views tokenisation as a major opportunity. The central bank is also considering whether tokenised assets, including stablecoins, should become eligible collateral in its Sterling Monetary Framework, and plans a later consultation on allowing central counterparty clearing houses to accept tokenised assets as collateral.

Our earlier article on the UK government’s Downing Street business outreach outlined how Prime Minister Andy Burnham was courting founders and CEOs with a pro-growth message focused on making it easier to start, scale and invest in British companies. It also highlighted a push for deeper devolution to speed up infrastructure and regional development, alongside rising concerns in the banking sector about a potential windfall tax ahead of the next Budget.

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