FCA Crypto Capital Requirements: How Your Activities Determine Your Prudential Obligations

By CRYPTOVERSE Legal Consultancy

The capital required for FCA cryptoasset authorisation depends on the permissions your company seeks, its expenditure, its activities and the risks arising from its business.

A published minimum capital figure is only the starting point. An applicant needs a financial model that establishes the applicable requirements, identifies eligible resources and demonstrates how sufficient headroom will be maintained as the business develops.

For management, the practical question is:

Will our proposed funding support the business while maintaining the financial resources required for our permissions?

This article explains how to approach that assessment and prepare supporting application evidence.

1. Identify the Applicable Prudential Framework

The FCA published its final crypto prudential framework in PS26/12, introducing COREPRU and CRYPTOPRU. The expanded regime’s rules apply from 25 October 2027. Firms preparing applications should distinguish these requirements from their current MLR registration obligations and any existing prudential regime. FCA

Start with a written assessment identifying:

• The applicant legal entity.
• Its existing regulatory status.
• The proposed permissions.
• The activities associated with each permission.
• Relevant additional prudential frameworks.
• The dates on which the requirements apply.

For a group, assess the applicant’s resources and obligations explicitly. Group financial strength should be translated into a clear explanation of the funding and support available to the applicant.

2. Establish the Activity-Based Permanent Minimum

Under CRYPTOPRU 4.2.1R, the permanent minimum capital requirement is the highest applicable amount:

Under COREPRU 4.1.2R, the own funds requirement is the highest of the permanent minimum, fixed overheads requirement and K-factor requirement. COREPRU 4.3.1R generally sets fixed overheads at one quarter of relevant annual expenditure, subject to the detailed rules. fca.org.uk

The first practical task is therefore to ensure that the permission analysis and financial model describe the same business.

A company called a “broker” might propose activities beyond agency execution. A platform might also undertake principal dealing. Those facts should be resolved before management relies on a particular minimum.

3. Understand Why the Minimum May Not Determine the Outcome

Consider this simplified hypothetical example:

The example illustrates the comparison between components. It is not a calculation for a particular applicant and does not determine its overall financial adequacy.

For internal planning, show each component separately. A spreadsheet containing only the permanent minimum makes it difficult to understand why the requirement changes as expenditure or business activity increases.

Document the inputs, assumptions and calculation methodology so another reviewer can reproduce the result.

4. Examine Expenditure Carefully

A practical expenditure review should reconcile the financial model with the proposed operating arrangements.

Relevant budgeting questions include:

• Have salaries and recruitment commitments been included?
• Are provider charges fixed, variable or subject to minimum commitments?
• How are intra-group services charged?
• Are cybersecurity, assurance and compliance costs included?
• Have implementation costs been distinguished from recurring expenditure?
• Does the model account for delayed launch or lower revenue?

The regulatory treatment of expenditure requires its own assessment. Accounting classifications alone should not decide which amounts enter the calculation.

Where an applicant has limited operating history, record how forecast expenditure has been estimated and why it is credible.

5. Assess How Business Growth Affects Requirements

The firm’s proposed scale matters to its financial planning.

For each product or service, identify the business data needed to assess its prudential position. Depending on the applicable calculations, that review may require information concerning issuance, assets safeguarded, transaction activity, positions and counterparty exposures.

Build a practical data map:

Growth forecasts should connect commercial ambitions to resource planning. If management projects substantial expansion, the model should explain how staffing, expenditure, risk and funding develop alongside it.

6. Verify What Counts as Own Funds

Own funds are subject to eligibility, composition and deduction rules under COREPRU 3. Liquidity is assessed separately: COREPRU 6.2.1R sets the basic liquid assets requirement at one third of the fixed overheads requirement plus 1.6% of relevant client guarantees. Further applicable requirements and overall risk assessment must also be considered. fca.org.uk

For application preparation, distinguish:

• Funding already received.
• Funding contractually committed.
• Funding still under discussion.
• Amounts proposed to qualify as own funds.
• Cash or other assets available for liquidity purposes.

A signed investment term sheet, a parent-company assurance and money received in the applicant’s account represent different stages of funding.

Prepare an assessment of each proposed instrument and retain its supporting legal and financial documents.

7. Distinguish Capital, Liquidity and Operating Runway

These concepts answer different management questions.

A financing transaction can affect all three. Their subsequent movements may differ.

For example, an equity injection increases cash initially. Operating expenditure then reduces cash, while losses affect the financial position used to assess own funds.

A useful model should track these movements together. Avoid assuming that the opening bank balance will remain available throughout the forecast period.

8. Prepare Forecasts for the Whole Applicant Entity

The FCA expects financial information fully aligned with the legal entity seeking authorisation. It will not accept information representing only part of that entity. Its guidance identifies three years of forecasts as best practice and calls for supporting assumptions and evidence concerning proposed capital instruments. FCA

For practical preparation, assemble:

• An income statement forecast.
• A balance sheet forecast.
• A cash flow forecast.
• Prudential calculations.
• Funding assumptions.
• Supporting explanatory notes.

Check that the documents reconcile. Funding dates, expenditure, losses and closing balances should be consistent across the model.

Where the applicant also conducts other business, explain how that business affects its financial position.

9. Model Adverse Scenarios

A useful management exercise tests whether the funding plan survives plausible setbacks.

Possible scenarios include:

• Lower trading volumes.
• Reduced fee income.
• Delayed launch.
• Higher monitoring or custody costs.
• Unexpected remediation expenditure.
• A service-provider failure.
• Delayed investor funding.
• Increased exposure or concentration.

For each scenario, examine the effect on cash, eligible resources and prudential headroom.

Then identify realistic management actions. These might include securing additional funding, postponing expansion, reducing expenditure or changing the proposed launch sequence.

Record who can approve the action, how quickly it could be implemented and what evidence supports its feasibility.

10. Establish Monitoring and Escalation

Capital planning should produce a process management can operate.

A practical monitoring framework should identify:

• The calculation owner.
• Data sources and review controls.
• Reporting frequency.
• Internal warning thresholds.
• Escalation responsibilities.
• Funding decision authority.
• Actions following material business changes.

Illustrative triggers might include losses exceeding forecast, a delayed capital injection, higher expenditure or a planned new service.

Internal warning thresholds should give management time to act. Document the rationale for the chosen buffer rather than selecting an unexplained percentage.

11. Prepare a Prudential Evidence Pack

A focused evidence pack helps reviewers understand both the calculations and their assumptions.

Maintain version control. When permissions, expenditure or funding arrangements change, identify which calculations and documents need updating.

How CRYPTOVERSE Can Support Your Prudential Preparation

CRYPTOVERSE is a specialist legal and regulatory firm for UK FCA cryptoasset authorisation support.

We can help connect the permission analysis with prudential planning, review proposed funding arrangements, identify evidence gaps and coordinate legal and regulatory documentation with the applicant’s finance team and relevant specialists.

The objective is a clear account of the applicable requirements, proposed resources and management arrangements supporting the application.

Contact CRYPTOVERSE to discuss your proposed crypto activities and prudential readiness for FCA authorisation.

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