Proposals to Revise UK MiFID Ancillary Activities Exemption

On 03 July 2025, HMT and the FCA published details of the proposed replacement for the ancillary activities exemption (AAE) from authorisation for commodity derivatives trading under UK MiFID. HMT released a near-final order to empower the FCA to make relevant rules, and the FCA published a consultation paper with draft Handbook text for a new MAR chapter 10A.

Responses to both papers are due by 28 August 2025. The FCA aims to publish final rules in Q4 2025/ Q1 2026, with the SI to empower the FCA coming into force shortly before.

The new regime will come into force on 01 January 2027 (though the transitional relief under Article 72J of the RAO will continue to be available until 01 January 2028, which is intended to give firms unable to rely on the new regime time to obtain authorisation)

We set out below further details on the background and key elements of the proposed new regime.

Background

The existing AAE allows firms to trade in commodity derivatives, emissions allowances and derivatives of emission allowances without authorisation as an investment firm by the FCA. It is available to firms who meet certain eligibility conditions, who also satisfy the ancillary activities test (AAT). Briefly, the AAT consists of two components, both of which must be met:

• A 'market share' test, which compares the size of a firm's activity in different asset classes against the overall market in the UK and EEA; and

• A 'main business' test, to determine whether a firm's activity is truly 'ancillary' to the main business of its group, determined either by way of a 'trading test' or a 'capital employed test'

The AAE is set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO), Schedule 3, Part 1, paragraph 1(k), while the detail on the AAT is contained in the UK version of MiFID RTS 20.

In the Wholesale Markets Review in 2022, HMT committed to revoking and simplifying the existing AAT, as the calculations involved are regarded as overly complex and burdensome for firms (as may be inferred even from the brief outline above). A previous set of proposals provided for a replacement qualitative test, set out in legislation, supported by FCA PERG guidance (described in CP23/27) - however, this ran aground amid concerns over its design and lack of legal certainty. Simmons & Simmons assisted the Futures Industry Association (FIA) with its market response at the time, as we subsequently detailed in Markets View in March 2024 and June 2024.

The SI

The proposed SI, the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2025, would give the FCA new rule-making powers to implement a revised AAT, and specifically provides for the inclusion of a new 'annual threshold' test. In this way, the FCA will have power to issue not only guidance, but the AAT test mechanism itself.

This publication is the near-final version of the SI, and HMT's policy approach is settled, although the drafting approach, and technical aspects, may change before the SI is laid before Parliament in Autumn 2025.

FCA Handbook Rules

With relevant rule-making powers now being delegated to the FCA, all eyes turn to the regulator's proposals in its new consultation paper CP25/19, including drafts of the planned MAR 10A regime.

The 'market share' test - which was already hamstrung by calculation issues post-Brexit - is gone entirely. Instead, there is the new 'annual threshold' test, as mentioned above. The intention is to create a simple de minimis threshold for activity, as found in other jurisdictions' regimes (e.g. the EU, US and Switzerland). Indeed, the FCA is explicit that its "starting position is to adopt the same methodology as the EU de minimis test".

Simple as that may sound, the consultation flags a couple of key details that the FCA is still deliberating on, in particular:

• How to incorporate trading activity conducted on trading venues within the calculation. Such inclusion in and of itself marks a contrast with  the EU's AAE and has stirred some resistance within the industry. However, the FCA considers inclusion necessary in the UK's case given its higher proportion of venue-based trading. Nevertheless, it is undecided on whether (A) to include all cash-settled positions in derivatives traded on UK trading venues, or (B) to permit firms to exclude trading positions where (1) the counterparty is authorised, or (2) the trade is executed by an authorised broker acting on the firm's behalf. It is a question of weighing the simplicity of the former approach against the increased risk sensitivity of the latter.

• What the precise threshold should be. The FCA's decision as to the precise number will necessarily depend on how it resolves the question around inclusion of venue-based trading, as outlined above. The FCA has indicated it is mindful to set a limit of GBP 5bn in the case of option (A), and GBP 3bn under option (B).

• Whether the threshold should be static. The FCA recognises that, whatever threshold it sets may need to be changed in the future (e.g. depending on market conditions, subject to consultation), and is keen for views on the types of circumstances that might result in a need to amend it quickly. Moreover, the FCA is seeking input on the relative benefits of maintaining a static figure (for simplicity), or incorporating an automatic adjustment mechanism (e.g. to account for inflation)

The consultation represents a valuable opportunity to help guide the FCA's thinking on the above issues. We'd be very interested to hear your views and to assist with any FCA engagement.

Meanwhile, - the 'trading test' and 'capital employed test'  (both currently alternative instances of the main business test) - are being retained. However, the FCA proposes to simplify them by setting the relevant thresholds at a flat 50% (i.e. to the highest level currently available under existing derogations), while retaining the existing calculation methodology.

Importantly, the FCA's intention is that the three tests ('annual threshold', 'trading' and 'capital employed') will operate separately and independently - i.e. as alternatives rather than cumulatively where firms must satisfy both the 'market share test' and either leg of 'main business test'. The existing eligibility conditions will continue to apply and are reflected in the new MAR 10A.1R.

Across the tests, intra-group transactions, hedging transactions and transactions entered into as part of an agreement to provide liquidity on a trading venue will continue to be excluded from the calculations, as they are at present.

We look forward to engaging with market participants who are affected by these developments and will continue to monitor progress through to the FCA's final policy statement in Q4 2025/ Q1 2026. Please don't hesitate to reach out if we can help.