The Financial Conduct Authority (FCA) is actively working on new regulations for tokenized gold, which represents ownership of physical bullion through digital tokens. This initiative is part of a broader UK strategy to digitize financial markets, with officials projecting a potential boost of tens of billions of pounds to annual economic output. The FCA has engaged with financial institutions to discuss how tokenized gold could be utilized as collateral in wholesale markets, seeking to integrate it alongside traditional assets like cash and government bonds for daily margin calls. An announcement on these new standards is expected within the next few months.
This regulatory push is driven by the UK's desire to safeguard London's dominant position in the global gold trade, which currently handles about 70% of the world's trading volume. The move also comes as London faces increasing competition, particularly from China, in the gold market. Hong Kong, for instance, has already launched a government-owned gold clearing house and HSBC's retail gold token in Hong Kong has seen over $2.2 billion in trades. The FCA, in conjunction with the Bank of England and the Prudential Regulation Authority, has been reviewing the eligibility of tokenized gold as collateral for uncleared over-the-counter derivatives.
The FCA's approach aims to adapt existing wholesale market rules to tokenized assets rather than creating entirely new regulatory categories. This mirrors a precedent set in April, where the FCA confirmed that tokenized money market funds could qualify as collateral under UK EMIR rules. The Bank of England plans to release further policy on tokenized collateral later this year, with a comprehensive roadmap expected by year-end and consultations on most rule changes planned for 2027. The broader vision is to foster a digitally enabled wholesale market ecosystem where tokenized assets contribute to operational efficiencies, improved liquidity, and reduced risk.
