On 19 December 2025, the Financial Conduct Authority (FCA) published a policy statement (PS25/24) setting out changes to simplify the ancillary activities test (AAT) intended to give firms more legal certainty and reduce costs. 

Background

In July 2025, HM Treasury published draft amending legislation, enabling the FCA to issue a consultation paper (CP25/19), which set out its proposals for rules that it intended to make in relation to the ancillary activities exemption (AAE).

The FCA explains in PS25/24 that the purpose of these new rules is to make it simpler for firms to determine if they can benefit from the AAE, which allows a firm to be exempt from authorisation as an investment firm where its trading in commodity derivatives, emission allowances, or derivatives of emission allowances qualifies under the AAT.

Overview

The FCA highlights that under the AAE, firms must carry out the AAT to assess whether they are eligible for an exemption, but that the existing test was considered costly and burdensome for firms.

As a result, under its final rules the FCA is now introducing three separate and independent tests:

  • Annual threshold test (new): This FCA explains that test allows firms that trade over-the-counter (OTC) commodity derivatives on a relatively small scale (i.e. below a fixed monetary threshold of £3bn) to rely on the AAE and that the calculation includes only cash-settled commodity derivatives: that is, derivatives that either must or can be cash-settled. The FCA also explains that in response to feedback this test does not include exchange-traded derivatives and that this test replaces the current market share test, which is based on annual averages of overall market activity in relevant commodity derivatives on an asset class basis.
  • Trading test (modified): The FCA are retaining the existing methodology for calculating the trading test, but the applicable thresholds will be at 50%, calculating a firm’s relevant trading activities against the group’s activities. For this test, the group’s activities will include, for UK-based entities, their OTC trading and trading conducted on UK trading venues, and for non-UK-based entities, their trading conducted on UK trading venues.
  • Capital employed test (modified):  The FCA are also retaining the existing methodology for calculating the capital employed test, but the applicable threshold will be at 50%. For this test, the group’s activities will include the capital employed worldwide, not just within the UK.

The FCA also makes clear that each test is an alternative route to qualifying for the exemption. Firms need only meet the conditions of 1 test to rely on the AAE.

Next steps

The FCA sets out that new AAE framework comes into force on 1 January 2027 and suggests that firms currently using the AAE should familiarise themselves with its new rules and guidance to make sure they understand the new conditions and can perform any one of the three independent tests.