FCA Finalises Simplified UK Ancillary Activities Test

On 19 December 2025, the Financial Conduct Authority (FCA) published a policy statement (PS25/24) finalising the rules and guidance for the Ancillary Activities Test (AAT) under the Ancillary Activities Exemption (AAE). 

The revised AAT aims to reduce compliance costs and support the competitiveness of the UK commodity derivatives markets. The revision follows consultation and feedback from market participants and is intended to align with the objectives of the UK Wholesale Markets Review and the UK’s secondary international competitiveness and growth objective.  

Background 

The AAE exempts a firm from authorisation as an investment firm when its trading in commodity derivatives, emission allowances or derivatives thereof (collectively, commodity derivatives) satisfies the requirements of the AAT, provided the firm does not execute client orders, use a high-frequency algorithmic trading technique or act as a market maker. The AAE can be used by non-financial firms (i.e., end-users) to trade in commodity derivatives as an ancillary activity to their main business, without requiring FCA authorisation as investment firms.

The AAT, originally introduced under the EU’s second Markets in Financial Instruments Directive, has been criticised for its complexity and reliance on annual market data, resulting in significant operational burdens and costs for firms.

Following legislative changes by HM Treasury (HMT), the FCA was given the power to set the rules defining the conditions for reliance on the AAE. The FCA’s July 2025 consultation (CP25/19) proposed a simplified approach in this area, which has now been finalised in PS25/24. For further information on CP25/19, please see our previous article, available here.

Key Changes to the AAT

The FCA has replaced the previous dual-test regime (where firms must meet the conditions for both the market share test and the main business test to rely on the AAE) with three separate and independent tests to qualify for the AAE. 

Firms may rely on the AAE if they meet the conditions of any one of the following tests:

1. New annual threshold test (namely, the “de minimis” test)

• Firms with average outstanding notional exposure in over-the-counter (OTC) cash-settled commodity derivatives, i.e., those that either must or can be cash-settled, below a fixed threshold of £3 billion (across the previous three years), may rely on the AAE. The calculation excludes exchange-traded derivatives.
• The new annual threshold test will replace the current market share test, which is based on yearly averages of overall market activity in relevant commodity derivatives. Instead, the new annual threshold test will be based on a specific monetary threshold.
• The FCA may adjust the annual threshold through the normal consultation process.

2. Existing trading test with modifications (currently part of the main business test)

• The modified trading test measures a firm’s activity by aggregating gross notional across commodity derivatives. Excluded transactions, as defined below, are left out for the firm seeking to rely on the AAE but are included for other group entities. Both the firm and the group are assessed on a UK activity basis, with UK-based entities calculating both their OTC trading and trading on UK trading venues, and non-UK-based entities calculating their trading on UK venues only. The test is met if the resulting share of such commodity derivatives trading activities is no more than 50percent of the total group’s commodity derivatives trading activities.
• Calculations are performed annually using a three-year rolling average.

3. Existing capital employed test with modifications (currently part of the main business test)

• Similarly, the capital employed test is a modified version of the existing test, where the estimated capital employed for commodity derivatives trading, defined in the same manner as for the trading test discussed above, must account for no more than 50 percent of the group’s worldwide capital.  
• Calculations are also performed annually using a three-year rolling average. 

For each of the tests described above, intra-group transactions, hedging transactions, transactions undertaken under an agreement to provide liquidity on a trading venue, and transactions with FCA-authorised group members are excluded from the calculations (excluded transactions). However, for the trading test, these exclusions apply only to transactions entered into by the firm itself and not to those entered into by other group entities. The definition of a hedging transaction remains aligned with the existing UK Regulatory Technical Standard 20 and the commodity derivatives framework outlined in the FCA’s February 2025 policy statement (namely, PS25/1).

Next Steps

The new AAT framework will take effect on 1 January 2027. HMT will retain Article 72J of The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (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 to provide transitional relief before being revoked from 1 January 2028. 

The FCA states that firms currently using the AAE should familiarise themselves with the new rules and guidance to ensure they understand the new conditions and can perform any one of the three independent tests under the AAT framework.

The FCA expects to engage with relevant market participants before and after the new rules take effect to support orderly implementation. 

PS25/24 and CP25/19 are available here and here, respectively.