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  • HMT publishes revised policy approach to ancillary activities exemption

    3 July 2025
    HM Treasury (HMT) has published a policy note and draft statutory instrument on the ancillary activities exemption, which is an exemption (originally introduced in the revised EU Markets in Financial Services Directive) from investment firm authorisation requirements for firms that trade commodity derivatives or emission allowances as an ancillary activity to their main business. The exemption is intended for non-financial firms such as energy and other commodity trading firms which are active in both physical trading and financial instrument trading. Currently, firms must determine their eligibility for the exemption and ancillary activities test (AAT), which is burdensome and expensive for firms.

    Following the Wholesale Markets Review, the UK government brought in legislation (the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 (S.I. 2023/548)) which gave the UK Financial Conduct Authority (FCA) powers to develop a simpler test. However, industry feedback to the FCA's consultation on the proposed regime revealed significant concerns about adopting a principles-based approach to determining whether a firm requires authorisation for trading in commodity derivatives and emission allowances. The 2023 Order was amended to remove the relevant provisions relating to the ancillary activities' exemption, except for the removal of the requirement that firms notify their use of the exemption to the FCA which took effect on 1 January as planned.

    Having engaged with industry further regarding reform of the ancillary activities exemption (AAE), HMT's policy note confirms that HMT intends to grant the FCA powers to make rules in relation to the AAT and to set a new annual threshold for activity below which a person can also use the AAE. The FCA published a consultation on its proposed approach on the same day. The revised ancillary activities regime will apply from 1 January 2027.

    The current legislative regime will also be revoked through a separate commencement instrument. The revocation will include the provision in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) which allows firms to forego performing the market share test part of the AAT if they cannot access relevant data from an official source. The market share test will not be required under the new regime. To allow firms time to transition to the new regime, the RAO provision will be retained until 31 December 2027. The deadline for any comments on the draft statutory instrument is 28 August. HMT intends to lay this instrument before Parliament in the autumn.

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    Topic: MiFID II