We set out changes to simplify the ancillary activities test (AAT) to give firms more legal certainty and reduce costs.
We are making it simpler for firms to determine if they can benefit from the ancillary activities exemption (AAE).
The AAE 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.
Under the AAE, firms must carry out the AAT to assess whether they are eligible for an exemption. The current test is costly and burdensome.
Under our final rules, we are therefore introducing 3 separate and independent tests.
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.
The new rules will apply to non-financial firms that trade commodity derivatives, emission allowances, or derivatives of emission allowances seeking to rely on the AAE.
The new AAE framework comes into force on 1 January 2027.
Firms currently using the AAE should familiarise themselves with our rules and guidance to make sure they understand the new conditions and can perform any 1 of the 3 independent tests.
We’ll speak to relevant market participants before and after the new rules take effect, to support the new regime.
The AAE exempts commercial users or producers of commodities from the need to seek authorisation as an investment firm, if they trade in commodity derivatives, emission allowances or derivatives of emission allowances as an ancillary activity.
The Treasury has made legislative changes[4] giving us power to set the rules defining the conditions under which firms can rely on the AAE.
To benefit from AAE, a firm must carry out the AAT, which enables it to determine if:
We set out our proposed rules in CP25/19, ‘Ancillary Activities Test’[2].
Links