The UK Financial Conduct Authority (FCA) has launched a public consultation to determine whether certain tokenized gold products should be exempt from fund rules covering collective investment schemes (CIS) and alternative investment funds (AIF). London, which accounts for 70% of global OTC gold trading, seeks to protect its position against China’s rise and tokenization-driven innovation.
🔑 Key takeaways
- FCA consultation open until October 23, 2026
- Global tokenized gold market cap: $4.4 billion (July 2026)
- Targeted CIS and AIF rule exemption under consideration
- Bank of England evaluating tokenized gold as eligible collateral
- 123 responses received in the prior wholesale tokenization call for input
FCA consults industry on bespoke tokenized gold regime
The UK Financial Conduct Authority (FCA) published a call for input on September 14, 2026, examining whether certain tokenized gold products should be exempt from the country’s fund rules, specifically the collective investment scheme (CIS) and alternative investment fund (AIF) regulations. The consultation remains open until October 23, 2026.
London accounts for approximately 70% of global over-the-counter gold trading by notional volume, according to World Gold Council data. China has been working to strengthen its position as a bullion trading center, presenting direct competition to London’s traditional dominance in the market.
The FCA, alongside the Bank of England and HM Treasury, is exploring several policy responses depending on industry feedback:
- Clarifying existing rules applicable to tokenized gold
- Developing a recognized classification for specific regulatory purposes
- Assessing targeted rule or legislative changes
- Creating a bespoke regime for tokenized gold or tokenized commodities
One specific option under consideration is a targeted exemption from CIS and AIF rules. The FCA identified that uncertainty over whether tokenized gold products fall under these frameworks could affect whether certain investors are willing or able to hold the tokens, potentially stalling product development. Industry participants have warned that this legal ambiguity could restrict access to these products.
“In our discussions with industry on tokenization, tokenized gold has emerged as an area of interest. We’re keen to understand whether existing regulatory frameworks remain the right fit for gold markets and how innovation could strengthen the efficiency and competitiveness of UK markets.”
Jon Relleen, Director of Infrastructure and Exchanges, FCA
123 responses on wholesale tokenization
Alongside the consultation, the FCA and Bank of England published a separate feedback statement noting they received 123 responses to a May 2026 call for input on tokenization in wholesale financial markets. Firms were generally supportive of the UK’s work on wholesale tokenization, with collateral emerging as the most frequently mentioned use case.
Respondents requested more clarity on eligibility of tokenized collateral, including tokenized money market funds, gold, and stablecoins. The two regulators plan to publish a tokenization roadmap later in 2026 with details and target dates for each workstream.
$4.4B market grows amid regulatory ambiguity
Global market capitalization of tokenized gold products reached approximately $4.4 billion as of July 2026, with Tether Gold (XAUT) and Pax Gold (PAXG) representing significant market share. These products represent ownership rights over physical bullion held by an issuer or custodian, with digital tokens transferable between investors while the underlying gold remains in secure storage.
| Product | Market position (July 2026) | Regulatory treatment |
|---|---|---|
| Tether Gold (XAUT) | Significant share of $4.4B market | Gold-backed tokens, jurisdiction-dependent |
| Pax Gold (PAXG) | Significant share of $4.4B market | Gold-backed tokens, jurisdiction-dependent |
Under the European Union’s Markets in Crypto-Assets (MiCA) regulation, gold-backed tokens fall within the asset-referenced token (ART) category. However, no ART had received formal approval under that regime as of July 2026.
In the digital asset lending market, Aave’s $25 million debt ceiling for borrowing against Tether Gold had been fully utilized by late August 2026. Arch Lending began accepting tokenized gold through PAXG and XAUT for loans at loan-to-value ratios of up to 75%.
Tokenized gold as strategic collateral
UK regulators are examining whether tokenized bullion could make physical gold easier to use as collateral in financial transactions. The FCA and the Prudential Regulation Authority (PRA) previously identified tokenized gold as a possible collateral asset for uncleared over-the-counter derivatives.
The Bank of England is considering whether tokenized assets, including stablecoins, could qualify as eligible collateral under its Sterling Monetary Framework, through which it provides liquidity to financial institutions. The central bank plans to consult later in 2026 on whether central counterparty clearing houses (CCPs) should be allowed to accept tokenized assets as collateral.
The proposals form part of a wider UK push to modernize wholesale markets through tokenization. Sixteen firms were participating in the UK Digital Securities Sandbox at the time of the consultation, with regulators examining longer operating hours and settlement infrastructure capable of functioning close to 24/7.
Research cited by authorities found that U.S. market participants held an average of 7% more collateral than required as a safety buffer. Industry participants told UK regulators that digital infrastructure could reduce operational constraints contributing to excess collateral holding.
Tokenization at the heart of UK financial strategy
The government selected HSBC’s Orion platform in July 2026 for its first digital sovereign bond, with the initial Digital Gilt Instrument targeted for issuance by the end of Q1 2027. UK authorities have also been examining tokenized money alongside securities, with Bank of England Deputy Governor Sarah Breeden stating in May that the country’s future payment infrastructure could accommodate tokenized bank deposits, regulated stablecoins, and potentially a digital pound.
The UK and U.S. laid out a joint plan in July 2026 to facilitate movement of tokenized financial products between their markets. HSBC already enables institutional trading of tokenized gold on its Evolve platform for FX and precious metals. The World Gold Council unveiled plans for a wholesale digital gold initiative with collateral mobility as a primary goal.
Bridging the fundamental regulatory gap
No final decision has been announced, and FCA officials have emphasized the regulator remains open to different approaches. However, analysis published by Ledger Insights highlights a fundamental regulatory gap: if a firm holds shares or bonds on someone’s behalf, that constitutes a regulated activity requiring FCA authorization, whereas holding gold bars does not. A gold token will almost certainly be treated as a regulated financial instrument, placing it inside the FCA perimeter, while the approximately $1.2 trillion worth of physical gold backing it in London vaults sits outside regulatory supervision. The custody function is governed by exchanges’ contractual terms with vaults rather than regulatory oversight.
In this context, the FCA’s proposed exemption could prove decisive in maintaining London’s position as the dominant hub for tokenized gold. A clear and tailored regime would reduce legal ambiguity, encourage innovation, and strengthen the attractiveness of the UK financial center as China and other hubs compete for this rapidly growing market. Industry feedback due by October 23 will shape the regulatory path chosen.
Sources
This article is published for informational and educational purposes only. It does not constitute investment advice in any form. Always conduct your own research (DYOR) before making any decisions.
