UK's FCA to regulate tokenized gold to preserve London's place as the top hub for bullion

The UK's Financial Conduct Authority is drafting formal rules for tokenized gold, positioning digital asset frameworks as a tool to preserve London's dominance in global bullion trading. According to CoinDesk, the FCA is consulting financial institutions on how tokenized gold could be used as collateral in wholesale markets. London's over-the-counter market currently accounts for 70 percent of the world's notional gold trading volume, per the World Gold Council cited in CoinDesk's reporting, but that dominance is increasingly challenged by China.

Tokenization of gold is the process by which digital tokens are created to represent ownership rights in physical gold, with the token issuer holding the gold as backing. The FCA and Bank of England revealed plans for tokenization and modernization of their financial markets in May. Chris Woolard, the UK Treasury's wholesale digital markets lead, laid out a 12-month plan in July to speed up digitization of the country's financial markets, projected to boost annual economic output by 33 billion pounds, or $44 billion.

Simon Walls, executive director of markets at the FCA, said: "Tokenization has the potential to transform wholesale markets, reshaping how assets are issued, traded and settled." The FCA stated it will "have more to say on our approach to tokenisation soon" and is not linking tokenization efforts to a specific retail use case. The agency is expected to announce progress on drafting new rules for tokenized digital assets within the next few months, according to Financial Times reporting cited by CoinDesk.

The bear case carries several limiting factors. The FCA has explicitly stated the tokenization effort is not linked to a specific retail use case, constraining initial scope to institutional wholesale markets. The agency's language is exploratory, with officials "monitoring developments" and "planning to engage" rather than announcing specific regulatory commitments. London's gold market dominance is being challenged by China, suggesting tokenization alone may not reverse that trend. No details have been provided on what the rules will contain, what constraints or licensing requirements they might impose, or how they will affect existing OTC market structure.

The open questions are substantial. What specific regulatory framework will the FCA propose for tokenized gold: custodial requirements, capital adequacy, reporting standards? Will tokenized gold be regulated as a financial instrument, commodity, or new category? The timeline described as "within the next few months" remains unspecified, and it is unclear whether rules will apply only to institutions or also to retail participants. How the FCA's rules will interact with existing gold market infrastructure and OTC market participants is unaddressed. Whether other major financial regulators (EU, US, Singapore) will follow, or whether the FCA will move first, is unknown. The actual economic output gains to London from tokenized gold versus other digitization measures are not quantified.