UK amends ancillary activities exemption under FSMA to introduce FCA rule-making powers

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2025 has been laid before the UK Parliament, accompanied by an explanatory memorandum. This follows the draft version laid in July. The order amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) to reform the ancillary activities exemption (AAE). The AAE allows firms dealing in commodity derivatives, emissions allowances or related derivatives as an ancillary activity to be exempt from seeking investment firm authorisation. The order introduces changes giving the FCA a new rule-making power to set criteria for determining when such trading qualifies for exemption. The current AAE is replaced with a more proportionate regime offering two options: (i) assessing whether the activity is ancillary to the firm's main business at group level; or (ii) checking whether the activity is below an annual monetary threshold determined by the FCA. The order also makes consequential amendments allowing the FCA to direct how firms provide calculation data under both tests and removes references to assimilated law that FCA rules will replace.

The existing legislative regime will be revoked in a separate commencement instrument, including Article 72J of the RAO, which previously removed the need for firms to perform the market share test if official data was unavailable. While this will not apply under the new regime, certain paragraphs of Article 72J will remain in force until 1 January 2027 and 1 January 2028, providing transitional relief.

These reforms implement commitments made in the Wholesale Markets Review and follow HM Treasury's consultation, with a formal response published in March 2022, confirming support for introducing a simpler test. The FCA consulted on rules in July and the consultation is now closed, with a final policy statement expected in Q4 2025/Q1 2026. The order enters into force in stages: Article 1 and Article 2(d) apply from 10 December, while the remaining provisions take effect on 1 January 2027.

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