The U.K.’s financial regulator is developing a regulatory framework for tokenized gold as it seeks to accelerate the digitalization of financial markets and strengthen the country’s position as the world’s largest gold trading hub.
The Financial Conduct Authority (FCA) launched consultations with major banks and other financial market participants on the regulation of tokenized gold. The regulator plans to establish standards that will support the segment’s development and integrate real world assets (RWAs) into wholesale financial market infrastructure, the Financial Times reported.
According to sources familiar with the discussions, the FCA is gathering proposals on how RWAs could be used as collateral in wholesale markets. The regulator is expected to present its first regulatory initiatives in the coming months.
The effort is part of the U.K.’s broader strategy to digitalize its financial infrastructure. At the same time, authorities are working to preserve the country’s leadership in the global precious metals market amid growing competition from China. According to the World Gold Council (WGC), about 70% of global gold trading volume takes place through the London over the counter market.
Another challenge for the regulator is the division of responsibilities. The FCA doesn’t oversee the physical gold market, but it regulates gold related derivatives and exchange traded products. As a result, officials are discussing a supervisory model that would extend regulation to tokenized forms of gold ownership.
The initiative aligns with the U.K. government’s strategy to promote tokenization as a way to improve stock market efficiency and encourage innovation in asset management. Earlier, the FCA and the Bank of England’s Prudential Regulation Authority (PRA) said they planned to introduce additional proposals on the use of tokenized collateral within the existing legal framework.
According to a recent report by the U.K.’s Digital Financial Markets Commissioner, the country could generate up to £33 billion in additional annual economic output and about £14 billion in tax revenue by 2035 if the tokenization market develops successfully.
