FCA Explores Regulatory Exemption for Tokenised Gold Products

There have been discussions to grant an exemption to some tokenised gold products from current fund regulations as regulators explore how tokenised gold can be used more conveniently in the wholesale financial markets of London. The FCA will detail the possible changes on Monday in a process involving the Treasury and the Bank of England that looks at whether there needs to be a separate regulatory regime for tokenised gold or other commodities. One of the proposals being discussed involves an exemption from the regulation of collective investment schemes and alternative investment funds.

UK Regulators Weigh Changes to Existing Gold Market Rules

As per the report by the Financial Times, the decision to go through with this is still not confirmed, and the officials at the FCA have said that they are still open to other possibilities. In simple terms, tokenised gold means having ownership rights over the actual physical gold stored somewhere by the issuer or the custodian. Investors can then trade the tokens, with the actual precious metal held in safe custody. According to industry sources speaking to the FCA, uncertainty about whether the products fall under the Collective Investment Scheme (CIS) or Alternative Investment Fund (AIF) regimes may limit their availability to certain investors.

The regulator intends to collaborate with the Treasury to determine whether some types of tokenised gold products and their underlying market infrastructure would require a particular exemption from the CIS and AIF regulation. According to Jon Relleen, the FCA director for infrastructure and exchanges, tokenised gold had come forward as one of the topics of discussion. “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,” Relleen said. 

In addition to trading access, the UK regulators are considering whether tokenised bullion will facilitate the utilisation of physical gold as collateral in financial dealings. Tokenised gold was recognised as potential collateral in over-the-counter derivatives by the FCA and the Prudential Regulation Authority. Efforts to set up regulations regarding tokenised collateral have been ongoing between regulators and the industry.

In July, according to an estimate by the government-backed Industry Taskforce on FinTech, the UK could generate up to 33 billion British pounds, or $44 billion (roughly Rs. 4,20,948 crore), in annual output by 2035 by pioneering tokenised financial markets. The estimate comes from the first report published by Wholesale Digital Markets Champion Chris Woolard, who was appointed by HM Treasury to help implement the government's digital market strategy.