On 30 March 2023, HM Treasury published a draft of The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023, along with a draft explanatory memorandum. The draft statutory instrument (SI) amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO), which specifies types of activities and investments for the purposes of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017.

The SI is intended to streamline the process for determining when a firm trading commodity derivatives or emission allowances needs to be authorised as an investment firm, which HM Treasury consulted on as part of the Wholesale Markets Review (WMR). The FCA will put in place a simpler and therefore lower cost regime for determining when a firm that trades commodities or emission allowances as an ancillary activity does not need to be authorised as an investment firm.  

The explanatory memorandum notes that currently, firms are required to perform costly calculations to determine whether their trading activity is ancillary to their main commercial business and therefore whether they are exempt from the commodity position limits regime. The SI removes the obligation for firms relying on the ancillary activities exemption to notify the FCA of their exemption annually. It also removes article 72J of the RAO which enables firms to carry on their business without obtaining authorisation if there is no data available to them to perform the test establishing when an activity is ancillary.

Finally, the SI also removes references to Commission Delegated Regulation (EU) 2017/592 (RTS 20) which outlines the regulatory technical standards for determining when a firm’s activity is considered to be ancillary to its main commercial business.

The SI will enter into force on 1 January 2025.