The UK Financial Conduct Authority (FCA) is reportedly reviewing the tokenization of gold. Multiple reports say a regulatory framework is in the works. The FT reports that one important aspect of the review is how tokenized gold could be used as collateral in wholesale markets. While the FCA does not regulate physical gold, it does oversee gold-based derivatives and exchange-traded products that could be based on gold.
As London is a key global financial center, this makes a lot of sense. Currently, London is home to around 70% of global gold trading – a characteristic they would like to maintain.
The UK’s bullion trading is estimated at around a daily OTC turnover of $60 billion. This is a segment of financial services where New York City is second, yet the US dominates gold derivatives and futures trading. By tokenizing gold, theoretically, London could gain in this segment.
Other erstwhile aspirants in the gold market trading include Switzerland, China (Shanghai/Hong Kong), and Singapore. Each of these jurisdictions would like to lead.
Digital assets or the representation of ownership via a digital ledger are growing in importance. A trustless, shared ledger can speed up transactions securely, boosting market efficiency. The UK has been pursuing improved activity for all capital markets, so while the FCA has yet to comment on tokenized gold, it aligns with its overall strategy.
