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.
"We're monitoring developments across tokenisation and digital assets, including emerging use cases such as tokenised gold,” a Financial Conduct Authority (FCA) spokesperson told CoinDesk Monday via email.
The FCA is planning to engage with the industry to explore the opportunities and challenges presented by tokenization, the spokesperson said, adding that “We'll have more to say on our approach to tokenisation soon.”
The FCA spokesperson noted its tokenization efforts are not linked to a specific retail use case. It instead said it is exploring tokenization developments across the wider market.
The tokenization effort was first reported by Financial Times on Monday, as part of the FCA’s digital asset strategy to ensure London maintains its status as the top global hub for the trade of the precious metal. The FCA reportedly approached financial institutions to explore tokenized gold regulations to foster market growth, according to the report.
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.
Chris Woolard, the U.K. Treasury's wholesale digital markets lead, laid out a 12-month plan in July to speed up the digitization of the country’s financial markets, which it projects could boost annual economic output by 33 billion pounds ($44 billion).
The FCA and the Bank of England revealed plans for tokenization and modernization of their financial markets in May. "Tokenization has the potential to transform wholesale markets – reshaping how assets are issued, traded and settled," Simon Walls, executive director of markets at the FCA, said.
The price of gold reached an all-time high of roughly $5,595 a troy ounce in January, but it has since slipped and is currently priced at about $4,340.
UPDATE (Aug. 10, 17:00 UTC): Updated headline, dek and the first few paragraphs with comments from the FCA.
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