UK FCA Eyes Tokenized Gold for Institutional Collateral

The UK's FCA is developing a framework for tokenized gold, aiming to integrate the asset into London's $44B tokenization strategy by 2035.

According to information from Fork Log, discussions are focusing on the practical integration of tokenized gold into existing financial infrastructure, rather than simply creating a new product for retail investors.

The central challenge involves how a token representing ownership of physical gold can be recognized and transferred as collateral between financial institutions.

Under the traditional model, using gold as collateral often requires multiple intermediaries, complex ownership verifications, and lengthy settlement processes.

Tokenization allows asset rights to be represented within a digital infrastructure, which could significantly accelerate their transfer.

However, regulators must determine how to verify the link between the token and the physical metal, who bears responsibility for storage, and how holder rights are treated in the event of a counterparty default.

These specific details will ultimately decide whether tokenized gold can achieve genuine institutional adoption.

London has more at stake than other markets

The UK has a unique interest in establishing such a framework due to London’s dominant position in the global gold trade.

According to data from the World Gold Council, the city is the largest over-the-counter (OTC) market for the precious metal, accounting for approximately 70% of global nominal OTC volume.

This means any infrastructure shift in the British market could have a ripple effect on how institutions trade, store, and utilize gold as collateral worldwide.

London also faces a competitive pressure. As financial assets increasingly migrate to DLT infrastructure, maintaining leadership in the gold market will depend on the UK’s ability to integrate these technologies without compromising existing ownership and settlement standards.

How tokenized gold functions as collateral

In a tokenized system, physical gold remains in a vault or with a designated custodian, while ownership or economic rights are represented by a digital token.

This allows the asset to be transferred within a DLT environment without the physical metal needing to change location for every transaction.

For financial institutions, the primary benefit is the increased velocity of collateral. A bank or participant could use tokenized gold for specific trades and then transfer it to another counterparty with far fewer operational steps.

However, this efficiency depends on regulatory recognition. Without clear rules regarding ownership, custody, and enforcement during defaults, technological speed alone will not suffice for large-scale adoption.

UK expands its broader tokenization strategy

The FCA’s work on gold fits into a wider transformation of British financial infrastructure. The Bank of England, the Prudential Regulation Authority, and the government are already viewing this technology as a vital tool for modernizing the settlement and movement of financial assets.

A government-backed industry roadmap estimates that widespread adoption of tokenization could add up to £33 billion ($44 billion) annually to the British economy by 2035.

Upcoming milestones include the planned issuance of the first tokenized UK government bond in early 2027. Simultaneously, work continues on infrastructure to link DLT-based financial operations with a potential CBDC.

Tokenized gold adds a distinct asset class to this strategy. If the FCA establishes rules allowing its use as institutional collateral, London could become one of the first major traditional financial hubs to directly integrate a physical asset with a global market into tokenized infrastructure.