UK ancillary activity rules: FCA to set thresholds

If you buy fuel, power or metals for a living, or you’re studying how firms hedge price risk, the ancillary activity exemption is the rule that often lets a non‑financial company trade commodity derivatives without becoming an “investment firm”. The Treasury has now signed off changes to that exemption. The Order was made on 17 November 2025, laid before Parliament on 19 November, and starts in two stages. It extends across the UK, covering England, Wales, Scotland and Northern Ireland.

Let’s ground the vocabulary we’ll use. The ancillary activity exemption (AAE) sits in Schedule 3 to the Regulated Activities Order (RAO). It grew out of MiFID II and historically relied on a set of calculations known as RTS 20. In short, if a group’s commodity derivatives trading is genuinely on the side of its main commercial business, it can avoid full FCA authorisation. That structure-and its reliance on RTS 20-remains your starting point until the new regime fully replaces it.

What’s changing is the test you use. The Order rewrites paragraph 1(k) in Part 1 of Schedule 3 so you can qualify in one of two ways: either your trading is ancillary to the group’s main business, or your trading is individually below an annual threshold. The Order also inserts a new paragraph 2A giving the FCA the power to make rules that spell out the group‑level criteria and to set that annual threshold. We’ll all be working to those FCA rules once they’re final.

Put simply, the law is moving from a single, complex test to a choice of two clearer routes. One route asks, “Is this activity genuinely secondary to what the group mainly does?” The other asks, “Is the scale of this activity small enough to sit under an annual limit?” The first route keeps the spirit of the old approach; the second gives smaller or less active traders a straightforward way to confirm they’re out of scope.

Who is this for? It covers non‑financial firms dealing on own account or providing investment services in commodity derivatives, emission allowances or their derivatives-think energy utilities, airlines hedging jet fuel, agribusinesses hedging grain, and manufacturers hedging metals. If a group’s main business is financial services, or if it uses high‑frequency algorithmic trading, the exemption doesn’t apply-those exclusions continue.

Here are the dates to watch. A small part of the Order starts first on 10 December 2025 to switch on the FCA’s rule‑setting and reporting framework. The substantive changes take effect on 1 January 2027, aligning with the government’s timetable for removing the old EU material in this area. There’s also a safety‑net date: remaining transitional provisions linked to article 72J of the RAO fall away on 1 January 2028, giving firms extra time if market data is scarce.

What this means for your test in practice. The “ancillary to main business” route will be judged on a group basis under FCA rules. Expect those rules to clarify what counts as speculative trading, what may be netted or excluded, and how to document the conclusion. The FCA consulted on this package over summer 2025 and has trailed a simpler test designed to cut cost and increase certainty.

The annual threshold route is new in UK law. You’ll compare your firm’s activity against a fixed annual limit set by the FCA. During consultation, industry commentary highlighted options the FCA floated-such as a de minimis threshold around several billions of pounds, with debate over whether to count certain exchange‑traded positions. Final figures will sit in the FCA’s rulebook, not in the Order itself.

A quick note on reporting. When asked, you’ll need to explain to the FCA which basis you rely on: either that your activity is ancillary under the FCA’s criteria or that it falls below the annual threshold. The Order updates regulation 47 of the UK MiFI Regulations so firms report on that basis, and it gives the FCA flexibility to direct how those reports are made.

Until 2027, don’t drop your current homework. The Treasury and the FCA delayed scrapping RTS 20 while the new framework was designed, so firms continue to use today’s approach for eligibility, albeit with the annual notification to the FCA already removed. That continuity stays in place up to the switch‑over date.

There’s also some tidying in the background. The Order amends definitions in the RAO to remove references to the now‑revoked EU delegated regulation and to let UK rules take their place. These are technical edits, but they matter for exam answers and compliance manuals because they show which document-FCA rules, rather than an EU text-you should now read first.

What you should do next if you’re learning this for class or handling it at work. Start by writing a plain‑English sentence for your group explaining which route you expect to use and why. Map the trades you’d include or exclude under that route. Note the key dates-10 December 2025 for the early switch‑on, 1 January 2027 for the new regime, and 1 January 2028 for the end of the last transitional backstop. Keep an audit trail so, if the FCA asks, you can show your working. This is an explainer, not legal advice, but it will help you frame the right questions when you read the FCA’s final rules.