The UK Financial Conduct Authority is set to announce a comprehensive plan on Monday to completely exempt tokenized gold products from UK fund rules, marking a significant shift from previous considerations of targeted exemptions. According to the Financial Times, the FCA will outline this bold approach to unlock London's bullion reserves for broader market use. The regulator is examining a dedicated framework for tokenized gold with the Treasury and Bank of England, though no decision has been made. The FCA's rationale centers on tokenization's potential to make traditionally physical and operationally complex assets easier to divide and transfer across digital markets, unlike shares and debt securities which already move through established electronic infrastructure.
Industry participants have consistently told the FCA that uncertainty over whether tokenized gold products fall within the collective investment scheme, or CIS, and alternative investment fund, or AIF, frameworks could restrict access and development. As reported by the Financial Times, the regulator acknowledges that both regimes currently restrict who can buy tokenized gold products. The FCA is now considering a targeted exemption from that perimeter that would cover certain gold tokens or gold market infrastructure specifically. Jon Relleen, the FCA's director of infrastructure and exchanges, confirmed that tokenized gold has emerged as an area of interest during the regulator's discussions with the industry.
The regulatory developments come as tokenized gold products show strong growth in activity and market capitalization. Tether Gold (XAUT) backs $2.63 billion in distributed asset value, while Pax Gold (PAXG) backs $1.87 billion, according to RWA.xyz data. Monthly transfer volumes have climbed significantly, with XAUT reaching $3.70 billion and PAXG hitting $1.61 billion, representing increases of 10.91% and 14.10% respectively over 30 days. The stakes are particularly high given that London holds around 70% of global gold trading volumes according to the World Gold Council, while China is actively building a rival bullion hub and competing for the same trading flows. Both leading gold tokens are currently issued outside the UK perimeter, highlighting the need for domestic regulatory clarity.
UK regulators are looking beyond trading access and examining whether tokenized bullion could make physical gold easier to use as collateral in financial transactions. The FCA and Prudential Regulation Authority had previously identified tokenized gold as a possible collateral asset for uncleared over-the-counter derivatives. Gold-backed tokens are already being used for collateral in parts of the digital asset market, with Aave's $25 million debt ceiling for borrowing against Tether Gold having been fully used by late August, while Arch Lending started accepting tokenized gold through PAXG and XAUT for loans at loan-to-value ratios of up to 75%. The Bank of England is also considering whether tokenized assets, including stablecoins, could qualify as collateral under its Sterling Monetary Framework, with plans to consult later this year on whether central counterparty clearing houses should be allowed to accept tokenized assets as collateral.
FCA officials have emphasized that no decisions have been made regarding the final scope and implementation of any exemption framework. According to the Financial Times, the regulator will announce its approach on Monday but has not determined whether an exemption would reach retail buyers or remain limited to wholesale desks that pledge collateral. The move could unlock more of London's bullion reserves for use as collateral, potentially strengthening the UK's competitive position against China's rival bullion hub development. The regulatory treatment differs between jurisdictions, with the European Union's Markets in Crypto-Assets regulation classifying gold-backed tokens within the asset-referenced token category, while the UK's proposed framework would provide a more comprehensive solution for domestic market participants.
