The Financial Conduct Authority is consulting with the Treasury and Bank of England on a possible exemption that would allow tokenized gold to operate outside traditional fund regulations in the UK wholesale market.
The FCA published a call for input on September 14 seeking feedback on how digital gold should fit into London's regulatory framework. The regulator has not proposed specific rules yet; it is weighing whether a bespoke carve-out from existing fund law would protect the London market's competitive position without creating new risks.
Tokenized gold allows holders to own fractional claims on physical bullion via blockchain. Unlike traditional commodity funds, which must comply with the Alternative Investment Fund Managers Directive and other fund-level restrictions, a tokenized version could theoretically settle faster and operate with lower overhead. If London does not accommodate the structure, issuers and traders will migrate to other financial centers offering clearer rules, eroding the capital that has historically flowed through London gold vaults and London Bullion Market Association dealers.
The call for input frames two competing risks. Digital gold settled on distributed ledgers could reduce operational friction and custody costs for wholesale buyers. But exempting it from fund rules might create regulatory arbitrage, where tokenized structures attract capital that would otherwise flow through regulated fund vehicles subject to investor protections and anti-money-laundering scrutiny. The FCA is asking market participants, banks, bullion dealers, asset managers, crypto firms, to quantify both benefits and hazards.
London holds roughly 8,000 tonnes of gold in vaults, more than any other city outside Fort Knox and Russian state reserves. The spot market for physical gold trading concentrates there; the LBMA sets daily reference prices used globally. A regulatory framework that welcomes tokenized gold could entrench London's role for digital asset trading while a framework that refuses it could hand market share to jurisdictions with lighter-touch regimes.
No decision timeline has been set. The FCA is consulting until late 2026, and any exemption would require coordination with the Treasury and the Bank of England, both of which sit on financial stability committees that weigh systemic risks. The pace of the inquiry reflects the regulator's view that tokenized gold warrants its own treatment rather than lumping it with digital assets regulated under the Markets in Crypto Bill.
