The UK’s Financial Conduct Authority (FCA) is exploring the potential to allow tokenized gold to be used as collateral and has held early conversations with banks, according to a Financial Times report. The initiative sits within the UK’s broader push to digitize wholesale financial markets and comes as London faces growing competition from Shanghai and Hong Kong as a bullion trading hub.
HSBC already enables institutional trading of tokenized gold on its Evolve platform for FX and precious metals. But trading is only the first step. The real prize here is collateral mobility. Last year the World Gold Council unveiled plans for a wholesale digital gold initiative with precisely that goal. A tokenized gold bar, represented as a digital twin, could in theory be pledged as collateral without the friction of physical transfer. But the path from concept to institutional acceptance runs into a fundamental problem in how UK financial regulation treats physical commodities.
Under the Financial Services and Markets Act (FSMA), Recognized Investment Exchanges such as the London Metal Exchange, ICE Futures Europe and LIFFE are exempt from the requirement to obtain FCA authorization. They operate as front line regulators of their own markets. The FCA’s own guidance on commodity market regulation states explicitly that the operation of warehouses licensed by these exchanges is not a regulated activity. The FCA’s interest in warehousing is only indirect, because exchange traded derivatives contracts need to be anchored to the price of the underlying physical commodity.
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