The UK's Financial Conduct Authority opened a public consultation on whether tokenized gold should be exempt from collective investment scheme rules. The FCA wants to know if current regulation is holding back a new asset class on London's precious metals market. This is about banks and funds trading gold in bulk, not retail investors.
What exactly is the FCA proposing?
The FCA published a call for input on Monday, September 14. The regulator wants to find out whether tokenization can improve how gold is traded, transferred, pledged and held in UK markets, including its use as collateral in wholesale deals. A wholesale market differs from a retail one in that banks, funds and other large institutions strike the deals, not individual traders. The review covers products that represent ownership of physical gold, with transparent backing, clearly defined ownership rights and reliable redemption arrangements. A call for input is a standard step the FCA takes before changing fund legislation, so the regulator gathers evidence from the market first and decides afterward.
The consultation runs until October 23. Based on the responses, the FCA will decide whether it needs to clarify existing rules, carve out targeted exemptions from fund legislation, or build a new regime specifically for tokenized gold. The FCA already discussed a similar structure with banks and other market participants back in August, so this consultation mostly formalizes work already underway rather than starting from scratch. No final decision has been made yet.
Why did the rules get confusing?
The trouble is that some tokenized gold products may fall under the UK's definition of a collective investment scheme (CIS) or an alternative investment fund (AIF). Both categories exist to protect retail investors in traditional funds and carry their own licensing, reporting and disclosure requirements. When a token's status stays unclear, some investors simply aren't allowed to hold it, while others avoid buying it over legal risk. The FCA admits that this uncertainty, not the concept of tokenization itself, is what's slowing new products down. For smaller issuers, strict CIS or AIF requirements mean extra legal and compliance costs before a product even launches, so clearer rules matter to startups in the tokenization space as much as to large banks.
The regulator is weighing several responses depending on industry feedback.
- Clarification: the FCA issues formal guidance on existing CIS and AIF rules without changing the law.
- Building a new asset category specifically for tokenized precious metals.
- Targeted amendments to fund legislation for specific use cases.
- A standalone regulatory regime for tokenized gold and other commodities.
London holds 70% of the world's gold market
The FCA published the gold consultation alongside a separate feedback statement on wholesale market tokenization, prepared jointly with the Bank of England. The May call for input drew 123 responses, and most participants backed further tokenization work in the UK. Gold isn't the only asset involved. The same statement covers tokenized money market funds and bonds that banks also want to use as collateral.
Collateral turned out to be the most frequently mentioned use case. Gold has long served as a hedge and a reserve asset, so banks and trading firms want faster settlement without giving up physical backing. Tokenization makes that possible, since the bars stay in certified vaults while ownership moves through a digital record. Tokenized collateral can change hands between counterparties almost instantly, while physical gold bars need shipping and verification that take far longer. Market participants asked for more clarity on which tokenized assets can serve as collateral in deals, namely money market funds, gold, and stablecoins such as USDT.
London remains the world's largest over-the-counter gold market. It accounts for roughly 70% of global trading volume, according to the World Gold Council. Losing flexibility to outdated fund rules worries British regulators more than their peers elsewhere in Europe, since the city's standing as the global hub for precious metals is on the line.
What are market participants saying?
Banks and financial firms surveyed mostly back the idea. Most requests centered on certainty itself. Without a clear token status, it's hard to convince compliance teams at large institutions to touch these assets, and pension funds and insurers rarely take that risk without clear rules. In a wholesale market where deals run into the millions, legal ambiguity costs more than any exchange fee ever could.
Most existing tokenized gold products, such as PAX Gold and Tether Gold, already run as tokens on the Ethereum blockchain. That means the regulatory question is really about infrastructure the crypto industry already knows well. It also means any FCA decision will directly shape how these tokens can be built into mainstream financial products.
What happens next?
The FCA and the Bank of England plan to publish a full tokenization roadmap by the end of 2026, with concrete timelines for each workstream. Until then, tokenized gold's status stays in limbo. It isn't banned, but it isn't fully settled either, so large institutions are mostly watching rather than building positions.
The UK is also pushing ahead with its own stablecoin rules and testing digital pound interoperability for cross-border payments. If the consultation lands on a standalone regime, tokenized gold could become the first commodity to get the same clear-cut treatment in Britain that exchanges once gave Bitcoin.
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