Why the UK financial watchdog is drafting new rules for tokenized gold

The U.K.’s financial watchdog is preparing rules for tokenized gold as part of its digital asset strategy to ensure London maintains its status as the top global hub for the trade of the precious metal.

The Financial Conduct Authority (FCA) approached financial institutions to explore tokenized gold regulations to foster market growth, the Financial Times reported Monday, citing people familiar with the plans.

London’s over-the-counter market (OTC) market has historically ranked as the number one center for gold trade and currently accounts for 70% of the world’s notional trading volume, according to the World Gold Council. However, London’s dominance is being increasingly challenged by China.

The tokenization of gold is the process by which digital tokens are created to represent ownership rights in physical gold, with the token issuer holding the gold as backing.

The FCA, which has also discussed digitizing the wholesale financial markets, is seeking feedback on the role tokenized gold could play as collateral in wholesale markets and is expected to announce progress on drafting new rules for tokenized digital assets within the next few months, the report said.

The regulator had not responded to CoinDesk's request for further comment at press time.