Applied to gold, that principle runs into a problem. The UK Financial Conduct Authority (FCA) does not regulate the sale of gold. If a tokenized asset is treated like the thing it represents, and the thing it represents sits outside the regulatory perimeter, the principle does not answer the question so much as restate it.
That is the difficulty facing the framework the FCA is now preparing for tokenized gold, first reported by the Financial Times, which said the regulator has discussed the subject with industry, including major banks, and is expected to say more within months. The motivation, according to the report, is defending London's position at the centre of the professional bullion market.
What the FCA can and cannot reach
The FCA regulates financial products linked to gold, including futures, funds and exchange-traded funds (ETFs). It does not regulate trading in the metal itself. Tokenized collateral, which would include tokenized gold, falls under the joint remit of the FCA and the Bank of England.
Both bodies said in their Future of Tokenisation call for input, published on 18 May, that they would set out further policy later this year on how tokenized collateral can operate within the existing framework. Responses closed on 3 July and a joint response statement is expected before the end of the year, which is most likely the announcement the FT's sources referred to.
The FCA told Sandmark that it would not comment on the specific question, adding "We're monitoring developments across tokenisation and digital assets, including emerging use cases such as tokenised gold. We'll have more to say on our approach to tokenisation soon."
A rounding error against London's volumes
The scale of the market being regulated deserves stating. Tether Gold (XAUT) leads the category with more than half of it by value, and Pax Gold (PAXG), the second largest, had a market capitalization of $1.8bn in July. PAXG has been in net redemption for 13 weeks, with roughly $3.4mn minted against $165mn redeemed, after gold fell back from its January peak near $5,600 an ounce.
Set against London, that is a rounding error. Members of the London Bullion Market Association traded an average of $179bn of gold a day in over-the-counter markets in July, on World Gold Council data, which is 87% of all OTC gold trading globally and more than COMEX in New York manages across its entire futures and options complex. PAXG's whole market capitalization equals about 1% of one London session. The FCA is preparing wholesale collateral standards for an asset class London clears before the morning is out.
Why London is bothering anyway
The case for acting early rests on where the competition is coming from rather than on current volumes. London hosts the London Bullion Market Association, which sets the quality standards for the metal traded globally, and combines deep liquidity, vaulting infrastructure and a legal system participants trust. The FT's sources pointed to competitive pressure from Shanghai and Hong Kong, with Shanghai seeking to become the wholesale hub.
Regulating tokenized gold would let it be used as collateral in wholesale markets, which is the mechanism by which a digitized bullion market would actually be useful. And that part of the London market is where the growth is. LBMA swap and forward volumes, the financing leg where gold is lent, borrowed and posted against obligations, averaged $61.7bn a day in July against $31.1bn across 2025 as a whole. It has almost doubled in a year, while spot trading has fallen back with the gold price.
That is the case for the FCA moving now. The business that tokenized collateral would serve is expanding fast, even as the headline market cools.
Gold itself is well off the highs that made any of this urgent. Spot was trading at about $4,350 an ounce at 15:25UTC on Monday, 22% below the $5,598.75 peak reached in January.
