London bets gold market on blockchain rules

London bets on blockchain rules reshaping the gold market

The UK's Financial Conduct Authority (FCA) is drafting rules to allow tokenized gold to be used as collateral for wholesale derivatives transactions. London controls about 70% of global over-the-counter gold trading volume, but is facing increasing competition from Shanghai and Hong Kong. A parallel cryptocurrency licensing system will be open for applications on September 30, 2026 and mandatory on October 25, 2027. Government advisers predict that asset tokenization could add £ 33 billion a year to the UK economy by 2035.

According to the Financial Times, the UK's Financial Conduct Authority is working with major banks and wholesale trading companies to develop rules to formally recognize that tokenized gold can be traded and settled on blockchain networks. The consultation addressed one specific issue: Although gold is safely stored in vaults, the transfer process is slow and costly when institutions need to use it as collateral; London's gold market still relies mainly on paper records and unallocated account bookkeeping systems built for the pre-digital era.

Why 400-ounce gold bars need digital twins

Wholesale gold trading never required much innovation because the product itself never changed. A 400-ounce gold bar kept in the vault of the Bank of England works the same way as it did fifty years ago: the bank holds claims on it, records the claims on its books, and actually transfers the metal only when absolutely necessary. The system works well for storage, but fails when trading desks need to deposit gold as margin for over-the-counter derivatives positions in minutes rather than days.

Tokenization solves this specific friction. Representing the ownership of gold bars as digital tokens allows banks to transfer the claim instantly through blockchain ledgers without having to pass paper documents through custodians and clearing intermediaries. The FCA's inquiry raises a narrow but far-reaching question: Can digital claims, when used as qualified collateral in wholesale markets, have the same legal and regulatory effect as the physical metal they represent.

London's 70% market share is the real motivation

London remains the world's largest over-the-counter gold trading center, and this dominance is no accident with the timing of the FCA. Digital asset platforms in Shanghai and Hong Kong are expanding rapidly, and British regulators view blockchain modernization as a defensive necessity rather than an experiment. Losing gold trading volume to Asian trading venues is much more than a loss of prestige for London; the gold market supports a broader ecosystem of custodian banks, refiners and clearing houses, all of which rely on London's role as the default clearing center.

This defensive logic is associated with a larger number. An industry working group backed by the UK government predicts that tokenization of mainstream financial assets, including gold, could inject 33 billion pounds (about US$44 billion) into the UK economy every year by 2035. Regulators rarely move quickly towards market structural changes without Treasury-backed data that provides political cover for the FCA's gold advisory.

Gold tokenization framework is under construction

Gold consulting is not an independent initiative. It is one of a series of actions launched by the FCA and the Bank of England since April 2026, each of which is expanding the scope of regulated digital finance in the UK.

April 2026: FCA policy statement PS26/7 will bring tokenized authorized funds into the scope of UK regulation.

May 2026: The FCA and Bank of England joint vision paper expands focus from tokenized funds to wholesale assets, including digital securities sandboxes.

June 2026: The crypto-asset regime introduces a code of conduct and prudential rules under the Financial Services and Markets Act.

September 30, 2026: FCA authorizes portal access to cryptocurrency and digital asset companies.

Early 2027: The first tokenized UK government bonds will be launched as a real-time pilot.

October 25, 2027: The mandatory digital asset regime will come into full effect in the UK.

Historically, the FCA has never regulated physical spot gold trading; its authority is limited to gold-related derivative contracts. Tokenization forces expanded regulation because digital tokens, which represent physical metal custody and delivery obligations, fall within the FCA's jurisdiction over digital infrastructure. This is a major shift in the scope of regulation, not a technical footnote.

Nine activities now require licenses

The broader crypto framework launched concurrently with the Gold Plan is based on the Financial Services and Markets Act 2026 (Crypto Assets) Regulations and replaces the UK's previously lax anti-money laundering surveillance with licensing obligations that are closer to the obligation to regulate traditional securities companies. Nine types of activities now require FCA authorization: operating trading platforms, providing crypto custody under CASS 17, arranging and managing pledge, lending, trading as a subject, arranging transactions between counterparties, issuing stablecoins, managing crypto asset portfolios, and providing regulated advice on crypto assets.

The company's compliance time window is very narrow. The application portal will open on September 30, 2026 and close on February 28, 2027. Any platform that provides services to UK customers without authorization after October 25, 2027 will be illegal.

stablecoin issuers face bank-level capital rules

stablecoin issuers face some of the strictest requirements in the FCA's June 30, 2026 policy statement. The issuer must hold at least £ 350,000 of its own capital and support each token in a 1:1 ratio with high-quality liquid assets (mainly short-term cash and government bonds) held in a statutory trust to protect client funds in the event of bankruptcy. The UK Treasury has also removed qualified stablecoins issued in the UK from the standard trading range to avoid overlapping regulatory obligations ahead of the 2027 payment services reform.

The framework also draws on protections that exist in the stock market. Crypto companies must now pass prudent capital requirements and stress tests to simulate market downturns, and platforms that cannot prove sufficient reserves may face the risk of outright revocation of their licenses. The rules for insider trading, laundering and market manipulation apply to cryptocurrency exchanges. As with the rules applicable to the London Stock Exchange, senior managers of UK-registered crypto companies are senior managers and certification systems, and they are responsible for compliance errors during their tenure.

Legal property status changes rights that investors can claim

Two related legal changes have strengthened the licensing system. Under the Property (Digital Assets, etc.) Act 2025, cryptocurrencies and tokenized assets are now recognized as personal property under British law, providing investors with a specific legal basis to pursue ownership claims after being hacked, scams or platform bankruptcy. Starting from the 2026/2027 tax year, the crypto asset reporting framework will require HMRC (UK Revenue and Customs) to automatically exchange user transaction data with the US Internal Revenue Service, filling the previous reporting loophole where some cryptocurrency gains were not reported.

Retail investors have also gained direct access to the asset class. The FCA has lifted its ban on retail purchases of cryptocurrency exchange-traded notes, and British investors can now purchase Bitcoin and Ethereum ETN in regulated venues such as the London Stock Exchange without having to gain exposure through overseas products.

Where this stands in a large-scale tokenization promotion

London's gold and cryptocurrency rules are unfolding in a global context, and tokenization of real-world assets has long gone beyond the pilot stage. In 2026, the total lock-in value of tokenized RWAs (excluding stablecoins backed by legal currencies) will be approximately US$15 billion to US$18 billion. McKinsey's conservative scenario predicts that the tokenized asset market will reach US$2 trillion by 2030, while the Boston Consulting Group and the Global Financial Markets Association predict as high as US$16 trillion, close to 10% of global GDP.

Traditional finance has invested real capital rather than pilot budgets. BlackRock's BUIDL fund invests entirely in cash, treasury bills and repurchase agreements on Ethereum and within a few months of its launch became the world's largest tokenized fund. Franklin Templeton runs his government money market funds on Stellar and Polygon. JPMorgan Chase's tokenized collateral network completed the real-time transfer of BlackRock's money market fund shares to Barclays Bank as collateral for over-the-counter derivatives in less than a minute, which previously took hours through traditional clearing. Goldman Sachs used its private digital asset platform to issue € 100 million in tokenized bonds for the European Investment Bank, along with Banque Santander and Societe Generale. Citibank has piloted tokenized deposit transfers, allowing corporate customers to transfer liquidity across branches outside normal bank hours.

Compared with this model, the FCA's gold and crypto framework is more like a regulator's transformation of one of its oldest markets to match the use of settlement infrastructure in government bonds and corporate bonds by BlackRock, JPMorgan Chase and Goldman Sachs, rather than the UK's entry into a speculative asset class. The British government bond pilot planned for early 2027 will be the clearest test yet of whether London can extend this infrastructure to sovereign debt before a mandatory crypto regime locks in the rest of the framework in October 2027.