The UK Financial Conduct Authority (FCA) has published policy statement PS25/24 finalising its revised approach to the ancillary activities test (AAT). The AAT determines when non financial firms trading commodity derivatives may rely on the ancillary activities exemption (AAE) instead of requiring investment firm authorisation for commodity derivatives or emission allowances trading that is ancillary to their main business.
HM Treasury made legislative changes by laying the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2025, giving the FCA the power to set the rules defining the conditions under which firms can rely on the AAE. Following its July consultation, the FCA has finalised its proposals largely as consulted on. From 1 January 2027, firms will be able to qualify for the AAE by satisfying any one of three independent tests: (i) a new GBP3 billion annual threshold test based solely on OTC cash settled derivatives exposure (with exchange traded derivatives expressly excluded following industry feedback); (ii) a modified trading test; or (iii) a modified capital employed test. The trading and capital employed tests will retain their existing methodology for calculating these tests but will now be subject to a 50% threshold. Transitional relief will apply until 1 January 2028, and firms currently relying on the AAE are advised to familiarise themselves with the new conditions and prepare for annual calculations under the updated framework.
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