FCA finalises new ancillary activities tests for application from January 2027

The FCA has published its policy statement (PS25/24) on the ancillary activities test which firms trading in commodity derivatives, emission allowances or derivatives of emission allowances need to meet in order to be exempt from authorisation as an investment firm. The final rules simplify the relevant tests, under which relevant firms will (going forward) need to meet any one of three tests in order to benefit from the exemption: (a) a new annual threshold test; (b) a modified trading test, or (c) a modified capital employed test. 

The new regime comes into force on 1 January 2027. To provide firms with transitional relief, HM Treasury will retain Article 72J of the RAO (which removed the need for firms to perform the market share test under the current ancillary activities test, due to a lack of certain published data) for a further 12 months until 1 January 2028. The FCA expects to speak to relevant market participants before and after the new rules take effect to support implementation.

Background 

The ancillary activities test (AAT), which was introduced by MiFID II, is complex and relies on calculations that require market data to be sourced every year at a cost. Following the Wholesale Markets Review, the current quantitative test was initially going to be change to a qualitative test. However, in response to feedback, the AAT will now remain a quantitative test, which is being simplified while maintaining the desired legal certainty.  

To achieve this, HM Treasury is amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) to specify that the ancillary activities exemption (AAE) is either met:

1. when a firm’s trading in commodity derivatives, emission allowances or derivatives of emission allowances is ancillary to the main activity of its group (i.e. the AAT); or
2. alternatively, the firm’s relevant trading activity is below an annual threshold.

The legislation empowers the FCA to write rules: 

• setting the criteria for the AAT; and
• setting the new annual threshold for trading activity in commodity derivatives, emissions allowances, and derivatives thereof, and criteria for when activity is considered to be below that threshold. 

These powers reflect the fact that the FCA is better able to specify the relevant criteria, as well as being more nimble in amending relevant thresholds when necessary. In line with FSMA 2023 (which allows for these powers to be transferred to the FCA and provides for certain legislation to be revoked), existing UK RTS 20 and Article 72J RAO (which removed the need for firms to perform the market share test of the AAT, where there is a lack of publicly available data on the overall size of the market) will be revoked separately. Article 72J will remain in place for 12 months after the commencement of the new AAE/AAT, i.e. until 1 January 2028, in order to assists firms transitioning to the new regime.

FCA final rules on the AAT

As proposed in its July 2025 consultation (see our earlier client note), the FCA is proceeding to introduce three separate and independent tests to determine whether a firm can use the AAE: 

• A new annual threshold test (“de minimis" test) which will exempt firms that undertake trading in commodity derivatives, emission allowances or derivatives of emission allowances on a relatively small scale below a fixed monetary threshold, which the FCA has set at £3bn. This will replace the current market share test which is based on yearly averages of overall market activity in relevant commodity derivatives and instead be based on a specific monetary threshold. 
   
  • The annual threshold test only includes cash-settled commodity derivatives (i.e. derivatives that either must, or can be, cash-settled). 
     
  • A £3bn threshold is the lower threshold the FCA had consulted on, reflecting the fact that the FCA will (in response to feedback and in order to align with requirements in other jurisdictions) exclude on-venue trades from the calculation. 
     
  • Under the rules firms’ average outstanding notional exposures across the previous three years would need to be below the annual threshold to benefit. 
     
  • The annual threshold may be adjusted following the normal consultation process, with the FCA deciding not to build in an automatic way for the annual threshold to be adjusted, such as in line with inflation.  
     
• The existing trading test and capital employed test (currently part of the main business test) are being retained with some modifications, principally to change the applicable thresholds to 50%. 
   
  • This means that, under the trading test, the size of the UK trading activities of the firm account for no more than 50% of UK trading activities of the group; or, under the capital employed test, the estimated capital employed for carrying out those trading activities accounts for no more than 50% of the capital employed at group level globally for carrying out the main business. 
     
  • The trading test and capital employed test will be assessed against the simple average of trading activities and estimated capital employed, respectively, across the preceding three years.  
     
• For all the above tests, intra-group transactions, hedging transactions and transactions entered into as part of an agreement to provide liquidity on a trading venue, and transactions entered into with FCA-authorised members of the group are excluded from the calculations (although, with respect to the trading test, these exclusions apply only to transactions entered into by the firm itself and not to transactions entered into by members of its group). The definition of hedging transactions will remain consistent with that set out in current UK RTS 20 and the new commodity derivatives regulatory framework outlined in FCA PS25/1. 

The FCA has indicated that the changes to the AAE are not intended to change the scope of the regulatory perimeter, which the FCA suggests should stay broadly the same as that under current MiFID-based tests.

In the consultation paper, the FCA noted that the changes to the AAE / AAT go to whether a firm qualifies as an investment firm and that firms trading in commodity derivatives will still need to assess their UK licensing position under the RAO (where different exclusions may apply), even if they are able to rely on the AAE for MiFID purposes. Firms benefitting from the AAE will, therefore, still need to carefully consider their UK licensing position – a complication caused by the complex way in which the UK’s implementation of MiFID interacts with the RAO. In its policy statement, the FCA has noted that it is not amending the regulatory perimeter (such as by deleting the MiFID override, as has been requested by some respondents to the CP) at this stage, but that complexities around perimeter issues may be considered in a future consultation.

Timing & next steps

The FCA asks firms currently using the AAE to familiarise themselves with the rules and guidance to ensure they understand the new conditions and are able to perform any one of the three independent tests under the AAT framework, which starts to apply from 1 January 2027. 

HM Treasury will retain Article 72J of the RAO (which removed the need for firms to perform the market share test of the current ancillary activities test, where there is a lack of certain data) for a further 12 months, and revoke it from 1 January 2028, to provide firms with transitional relief. 

The FCA expects to speak to relevant market participants before and after the new rules take effect to support implementation of the new regime and in order to assess the FCA’s assumption that the amended AAE should reduce the cost for firms performing the new tests, but should not impact whether relevant firms fall inside, or outside of, the UK regulatory perimeter. 

Documents

The FCA webpage published on 19 December 2025 is available here.

FCA PS25/24 is here. 

Our client note on the FCA’s July 2025 CP is here. 

Our client note on the new UK commodity derivatives regime, which will apply from 6 July 2026, is here.