UK FCA proposes new approach to ancillary activities test

The UK Financial Conduct Authority (FCA) has launched a consultation on its proposed revised approach to the ancillary activities test (AAT). The AAT is the test that firms must conduct to determine whether they can use an exemption (originally introduced under the revised EU Markets in Financial Instruments Directive) from investment firm authorisation requirements for their commodity derivatives or emission allowances trading business which is as an ancillary activity to their main business. The FCA's consultation is published on the same day as HM Treasury announced its revised policy approach to the exemption and the AAT. This approach will give 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 ancillary activities exemption (AAE).

The FCA is proposing to introduce three separate and independent tests to assess whether a firm can use the AAE. The first is the new annual threshold test (commonly known as a "de minimis" test), which will exempt firms that undertake trading in commodity derivatives on a relatively small scale. This will replace the current market share test. The second test is the existing trading test, which is currently part of the main business test, with some modifications. The third test would be the existing capital employed test, which is also part of the main business test, for which the FCA is also proposing some modifications. Intra-group transactions, hedging transactions and transactions entered into as part of an agreement to provide liquidity on a trading venue would be excluded from the calculations.

The deadline for responses on the FCA'S consultation is 28 August. The FCA intends to publish its final policy in Q4 2025/Q1 2026, which will allow firms time to adjust to the new regime before it comes into effect on 1 January 2027.

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