On May 29, UK Treasury issued commodity derivatives order 2024.
UK Treasury published The financial services and markets act 2000 (commodity derivatives and emission allowances) (amendment) order 2024 (StIn 2024/719).
Follows UK GVT May 2023 published commodity derivatives order, see #173077.
Also follows UK Treasury Mar. 2022 issued WMR consultation response, see #110205.
Purpose
In May 2023, UK Treasury made changes to the legislation re the ancillary activities exemption (AAE), which gives firms trading commodity derivatives or emission allowances a possible exemption from needing to be authorized as an investment firm.
UK Treasury consulted on this as part of the Wholesale Markets Review (WMR).
Following from the changes made by 2023 order, in Dec. 2023, UK FCA issued CP23/27 which sets out proposals concerning the commodity markets regime, see #193506.
This included revoking RTS 20, and new guidance on the application of the AAE.
Significant concerns raised with a principles-based approach to determining whether a firm requires authorization for trading in commodity derivatives/emission allowances.
In order to provide time to consider and address concerns, UK Treasury decided to pause implementation of legislative changes relating to new ancillary activities regime.
This SI provides that the planned changes will not come into force by omitting the relevant provisions from the 2023 Order, which were to take effect on Jan. 1, 2025.
UK Treasury will work with UK FCA, engage further with the market to deliver a regime that reflects the conclusions of WMR whilst also taking into consideration the concerns raised by industry, with the aim of implementing a new regime by Jan. 1, 2027.
In the meantime, firms will be able to continue to rely on the existing ancillary activities test to determine whether they are eligible to use the AAE.
This instrument does not omit provisions which remove requirement for firms to notify FCA annually of ancillary activity status re commodity derivatives/emission allowances.
This requirement will still be removed from legislation by 2023 Order on Jan. 1, 2025.
