UK regulators are preparing a framework for tokenised gold as part of plans to encourage the digitisation of financial markets and to protect the dominance of London in global bullion trading. The Financial Conduct Authority has talked to industry members, including big banks, about ways it could regulate tokenised gold in order to encourage growth in the market, according to people familiar with the watchdog’s plans.

Tokenised gold involves creating digital tokens that represent ownership rights in physical gold. Gold bars are held by the issuer as a backing asset for the tokens. The FCA has been seeking feedback on how tokenised gold could be used as collateral in wholesale markets and is expected to make an announcement on developing regulatory standards in the next few months.

London dominates the global gold market with about 70 per cent of trading volumes, according to the World Gold Council, but it is facing competition from China. If London does not modernise its gold market through measures including tokenisation, other venues may take the lead. Since HSBC launched a tokenised gold product for retail customers in Hong Kong, more than $2.2bn of it has been traded in over 276,000 transactions.

Chris Woolard, the UK Treasury’s wholesale digital markets champion, said the country could gain a £33bn economic boost if it accelerated plans to digitise financial markets. The World Gold Council said digital gold would mean ownership would no longer be constrained by bar sizes or vault locations.