The Future of the MiFID II Ancillary Activity Exemption

The regulation of European commodity derivatives markets is undergoing a phase of fundamental evolution. A key driver is the consultation¹ launched by the European Commission in February 2025 on the functioning of commodity derivatives markets, which among other aspects also addresses the Ancillary Activity Exemption (AAE).² The objective is to strengthen the resilience and transparency of the markets and to prepare potential adjustments to the regulatory framework.

The AAE allows non-financial companies, particularly energy providers and commodity-intensive industrial groups, to engage in commodity derivatives trading without requiring a corresponding MiFID license (authorization under Section 32 of the German Banking Act), provided that these activities are only ancillary to their core business. However, this very condition is increasingly coming under pressure – less from a single regulatory measure and more from the interaction between market developments and ongoing regulatory change.

The AAE is based on the fundamental principle that commodity derivatives trading by non-financial companies primarily serves to hedge operational risks. As long as these activities are functionally classified as ancillary, treating them the same as regulated financial institutions does not appear appropriate.

To operationalize this logic, the Delegated Regulation (EU) 2021/1833 introduced quantitative tests: the de minimis test, the trading test and the capital employed test. These each capture different dimensions of trading activity, namely the absolute derivatives volume, the relative importance of trading activities compared to overall business activity and the amount of capital deployed in trading. Together, they are intended to ensure that trading activities remain ancillary in relation to the company’s core business.³

While this framework is built on a stable underlying business model, tensions are increasingly emerging in practice – particularly against the backdrop of evolving market structures in commodity trading.

Rising volatility in energy and commodity markets has fundamentally changed the role of trading. While the traditional focus was on hedging physical risks, the active optimization of trading positions has now gained importance. This includes a) short-term arbitrage transactions b) portfolio optimization and c) the use of flexible assets.

This development means that trading activities are increasingly acting as an independent driver of value and are functionally decoupling from core operational business. As a result, the central assumption of the AAE – that trading is merely an ancillary activity – is coming under increasing pressure.

For companies, the key question is less about abstract regulatory developments and more about their concrete exposure. In practice, several typical factors can be identified that may cause the conditions for the AAE to no longer be met.

One major trigger is growth in trading volume. If notional exposure exceeds relevant thresholds, or if trading gains greater weight relative to overall business activity, the quantitative tests can no longer be met.

In addition, the qualitative classification of activities is becoming more important. Once trading is no longer primarily used for hedging but is instead deployed deliberately to generate earnings, its classification as “ancillary” can be called into question.

Organizational factors also play a role. Dedicated trading units with their own profit responsibility and separate steering mechanisms may be interpreted by regulators as an indication of an independent trading business.

Finally, more complex product structures contribute to a weakening of the link to the physical business, making this connection harder to demonstrate and further complicating the argument for continued reliance on the AAE.

These factors rarely occur in isolation in practice but tend to reinforce one another. It is precisely this gradual, almost incremental development that increases the risk of companies unintentionally falling outside the scope of the AAE.

At the same time, the application of the AAE is based on a self-assessment by the company, which creates an elevated risk of misjudgment, particularly when changes to the business model evolve gradually.

In such cases, companies may become obliged to apply for a MiFID license and comply with the full set of regulatory requirements applicable to investment firms. This includes a) organizational requirements for governance and control functions b) extensive reporting obligations c) detailed rules governing the design of trading processes and d) enhanced requirements for capital adequacy and risk management. In practice, this does not merely imply a regulatory reclassification but often necessitates far-reaching adjustments to processes, systems and organizational structures.

Alongside the developments outlined above, the REMIT II reform further increases the regulatory burden on the sector. The existing transparency framework is being significantly expanded and deepened.

While REMIT already provides for extensive reporting requirements covering transactions, orders, fundamental data and price-sensitive information, REMIT II substantially broadens these obligations. In particular, it introduces additional data fields, shortens reporting deadlines and creates new reporting categories.

A key innovation is the introduction of exposure reporting, which is expected to come into force from 2027. Larger participants in the energy market will in future be required not only to report past transactions but also to disclose their forward-looking market positions, expected production and forecast consumption. Regulatory oversight is thus evolving from a purely retrospective perspective to an increasingly forward-looking analysis of market behavior.

This development further intensifies the existing overlaps between regulatory regimes. In particular, energy derivatives may be reportable under both EMIR and REMIT, leading to duplicate reporting obligations. REMIT II increases this complexity even further through a broader scope of required data and the inclusion of additional market segments.

Rising regulatory requirements are leading to significantly closer integration of trading, reporting, and accounting. In particular, parallel reporting obligations under EMIR, MiFIR and REMIT mean that economically identical transactions must be recorded across different systems following different logics. This substantially increases reconciliation efforts and places high demands on data consistency and governance.

With REMIT II, this situation is expected to intensify further for participants in the energy sector, regardless of their classification under MiFID or their use of the AAE. The increased granularity of data, shorter reporting deadlines and additional reporting obligations require existing system landscapes to become more tightly integrated and data processes to be consolidated.

These developments also have indirect implications for IFRS accounting. Changes in derivative structures and trading strategies – for example as a result of regulatory requirements – can affect existing hedge relationships and, in extreme cases, lead to their discontinuation, resulting in earnings volatility. At the same time, reporting obligations require close alignment with fair value measurement under IFRS 13, particularly with respect to input data, valuation assumptions and modeling approaches.

Overall, it is evident that regulatory requirements can no longer be considered in isolation but have direct implications for data architecture, valuation models and financial reporting.

The Ancillary Activity Exemption is not facing an abrupt abolition but rather a gradual shift in its scope of application. This development is driven primarily by market evolution, ongoing regulatory change and increasing requirements around data and transparency.

For companies, what ultimately matters is less the formal existence of the AAE and more the question of whether their trading activities can still be classified as “ancillary” under the evolving framework. In particular, the growth of trading activities, their increasing autonomy and rising regulatory transparency requirements are making this distinction progressively more challenging in practice.

At the same time, it is evident that the regulatory burden does not arise from individual rulebooks in isolation but from their interaction. The growing integration of financial market and energy regulation is creating a system of increased complexity that deeply affects business models, processes and accounting.

Engaging with these developments at an early stage is therefore essential to ensure that companies remain strategically and operationally capable of acting effectively in an evolving regulatory environment.

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¹ Targeted consultation on the review of the functioning of commodity derivatives markets and certain aspects relating to spot energy markets 2025 - Finance
² Article 2 Exemptions | European Securities and Markets Authority, j
³ COMMISSION DELEGATED REGULATION (EU) 2021/1833, of 14 July 2021 supplementing Directive 2014/65/EU of the European Parliament and of the Council by specifying the criteria for establishing when an activity is to be considered to be ancillary to the main business at group level