This Policy Statement (PS) summarises the feedback received in response to our proposals in CP23/27 and sets out our response and final position on the rules and guidance to be included in the FCA Handbook.
Our final rules and guidance remain focused on strengthening the resilience of UK commodity derivatives markets under a variety of market conditions so that they can continue to serve their users, in the UK and globally.
We do this by enhancing trading venue surveillance requirements and providing a framework that gives trading venues a clearer picture of market risks from relevant over-the-counter (OTC) positions depending on the distinct features of the market.
This PS will be of interest to:
In line with commitments made in the Wholesale Markets Review[2], delivered through the Financial Services and Markets Act 2023, we have carried out a comprehensive assessment of the existing regulatory framework for commodity derivatives markets.
The rules in the instrument made as part of this PS will come into force on 6 July 2026.
We will commence rules that enable trading venues to receive and process applications for exemptions from position limits from 3 March 2025.
Exemptions granted under the current regime will continue to apply until 5 July 2026.
Transitional provisions relating to trading venues will also commence on 3 March 2025 to allow notification to us, prior to implementation, of various arrangements, such as the methodology for and setting of position limits and accountability thresholds and policies and procedures.
In May 2024, the Treasury laid the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) (Amendment) Order 2024[3]. This includes provisions to delay the commencement date of articles 2(2), (3) and (4) of the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023. In line with these changes, we will delay revoking the UK version of delegated regulation (EU) 2017/592 (RTS 20) for the time being. We will also not be taking forward the proposals we made in CP23/27 relating to the ancillary activity exemption.
We will work with the Treasury, and market participants, with the aim to develop an approach that reflects the conclusions of the Wholesale Markets Review while also taking into consideration the concerns raised by industry.
MiFID II Article 2(1)(j), transposed in paragraph 1(k) of Schedule 3 to the Regulated Activities Order (RAO) 2001, provides an exemption from authorisation to firms whose activities in commodity derivatives are ancillary to their commercial business (the ancillary activity exemption or AAE). To be able to benefit from the exemption certain criteria must be fulfilled (the ancillary activity test or AAT). Those criteria are set out in Schedule 3 to the RAO and RTS 20.
In May 2023, the Treasury legislated to simplify the exemption. Those changes are due to come into effect at the start of 2025. In CP23/27, we consulted on guidance intended to clarify how the AAE should be applied by firms.
The laying of the new order by the Treasury follows representations from industry, including in response to our consultation CP23/27, that have expressed concern that an approach based on qualitative criteria and FCA guidance does not provide sufficient certainty to firms about whether they could rely on the AAE. We and the Treasury will consider how to best address the concerns and make revised proposals.
The delay, announced on 29 May 2024, means that we will not be taking forward the proposals we made in CP23/27 relating to the AAE. RTS 20 will remain in place while a permanent solution is considered. This will mean that there continues to be a quantitative test for determining whether a firm can benefit from the exemption that will operate as it has done since we left the EU.
We can confirm that previous statements we have made about how the regime operates in the absence of data on the overall size of the market will remain operative until the revision of the regime is completed. However, the Treasury will not delay the abolition of the annual notification requirement in legislation. As a consequence, firms will no longer be required to systematically notify us on an annual basis on the use of the exemption.
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