FCA minimum capital requirements by firm type

Why capital requirements exist and what they cover

Capital requirements protect consumers and the wider financial system. If a firm fails, adequate capital gives it a cushion to wind down in an orderly way, meet outstanding obligations and, in the case of firms that hold client money, reduce the chance of a shortfall. This is why the FCA treats capital as a gating issue during authorisation.

Regulators generally distinguish between two related concepts. Initial capital is the amount a firm must hold at the point of authorisation, effectively the price of entry. Own funds requirements, sometimes called ongoing capital, are the amounts a firm must maintain on a continuing basis once it is trading, and these often rise as the business grows.

It is important to understand that the initial capital figure is only a floor. Many firms will need to hold considerably more than the minimum, because their ongoing own funds requirement, calculated by reference to their transaction volumes, outstanding e-money or fixed overheads, can exceed the entry threshold. The FCA also expects firms to hold a surplus above the strict minimum to absorb shocks.

The sections that follow focus on the initial capital thresholds that determine which regime a firm falls into, because these are the figures most applicants need at the planning stage. Alongside capital, the FCA assesses governance, systems and controls, business models and the suitability of key individuals.

Payment institutions: initial capital by service

Firms that provide payment services, such as processing card payments, executing transfers or offering money remittance, are typically authorised as authorised payment institutions (APIs) under the Payment Services Regulations 2017. Unusually, the initial capital an API must hold depends on which payment services it intends to provide, so two payment firms can face very different thresholds.

Part 1 of Schedule 3 to the Payment Services Regulations 2017 sets three tiers. A firm providing only money remittance, the service in paragraph 1(f) of Schedule 1, must hold initial capital of 20,000 euro. A firm providing payment initiation services, in paragraph 1(g), must hold 50,000 euro. Firms providing any of the core payment services in paragraphs 1(a) to (e), such as executing payment transactions or issuing payment instruments, must hold 125,000 euro.

Account information services, the service in paragraph 1(h) of Schedule 1, carry no initial capital requirement under Schedule 3, reflecting their lower-risk profile because such firms do not hold customer funds. Where a firm provides more than one payment service, its initial capital is the greatest of the corresponding amounts, not the sum of them.

A lighter-touch small payment institution (SPI) regime is also available for lower-volume firms. According to FCA guidance, an SPI cannot exceed an average of 3 million euro in monthly payment transactions over the preceding 12 months, and cannot provide account information services or payment initiation services. The SPI regime does not impose the same initial capital threshold, but SPIs face activity and volume limits instead.

Electronic money institutions

Firms that issue electronic money, for example prepaid cards or e-wallets, are authorised as electronic money institutions (EMIs) under the Electronic Money Regulations 2011. Because e-money firms hold balances on behalf of customers, the initial capital threshold is materially higher than for most payment institutions.

Schedule 2 to the Electronic Money Regulations 2011 states that an applicant for authorisation as an electronic money institution must hold an amount of initial capital of at least 350,000 euro. This single figure applies regardless of the particular e-money product, which makes the calculation more straightforward than the tiered payment institution approach.

On an ongoing basis, an authorised EMI must also maintain own funds for its e-money issuance activity calculated as an amount equal to 2 per cent of the average outstanding electronic money, under the method set out in Schedule 2. As a firm's outstanding e-money grows, this ongoing requirement can climb above the initial 350,000 euro floor, so scaling firms should model their capital position carefully.

A small EMI regime is available for firms below a defined threshold. FCA guidance states that a small EMI must not exceed an average outstanding e-money of 5 million euro, and new firms must project below that level. Small EMIs face lighter requirements than authorised EMIs but are correspondingly limited in scale.

MiFID investment firms under MIFIDPRU

Investment firms that carry on MiFID business, such as arranging deals, managing portfolios or dealing on their own account, fall under the Investment Firms Prudential Regime and its MIFIDPRU sourcebook in the FCA Handbook. Here, the entry-level figure is described as the permanent minimum capital requirement, and it is denominated in pounds sterling rather than euro.

MIFIDPRU 4.4 sets three principal tiers based on the activities a firm is permitted to carry on. A firm whose permitted activities are limited, and which does not hold client money or client assets, has a permanent minimum capital requirement of 75,000 pounds. A firm that holds client money or otherwise does not meet the lowest tier conditions has a requirement of 150,000 pounds.

The highest standard tier applies to firms carrying on activities such as dealing on own account, underwriting or placing financial instruments on a firm commitment basis, or operating an organised trading facility outside the limited exceptions. Such firms have a permanent minimum capital requirement of 750,000 pounds.

These permanent minimum figures are only one component of an investment firm's own funds requirement. Under MIFIDPRU, a firm must hold the highest of its permanent minimum requirement, its fixed overheads requirement and, where relevant, its K-factor requirement. As a result, many investment firms hold well above the permanent minimum once their overheads and activity levels are taken into account.

Initial capital thresholds at a glance

The table below summarises the minimum initial capital, or permanent minimum capital, that applies at the point of authorisation for the main firm types covered in this guide. All figures are drawn from the primary legislation and the FCA Handbook cited in the sources section.

Remember that these are entry-level minimums. A firm's ongoing own funds requirement, calculated by reference to its transaction volumes, outstanding e-money, fixed overheads or K-factors, may require it to hold considerably more capital as it grows.

The currency of each threshold matters. Payment and e-money regime figures are set in euro in the underlying regulations, while MIFIDPRU figures for investment firms are set in pounds sterling. Firms should confirm the applicable amount and any conversion approach with the relevant rules when finalising their capital plan.

How to work out your own capital position

Establishing your capital requirement is one of the earliest and most important steps in an authorisation project. Getting it wrong can delay an application or, worse, leave a firm undercapitalised shortly after launch. A structured approach helps you arrive at a defensible figure and evidence it for the FCA.

Start by confirming which regime and permission you need, because that determines which rulebook applies. From there, identify your entry-level minimum, then model your ongoing own funds requirement across a realistic set of business scenarios, including a stressed case. Firms preparing an application can use a structured platform such as Nasara Authorise to map their permissions to the relevant capital rules and keep supporting evidence in one place.

Throughout, keep clear records of your assumptions and calculations. The FCA will expect to see how you arrived at your figures, and a well-documented capital assessment reduces the risk of questions later in the process.

Conclusion

FCA capital requirements are not a single number but a set of thresholds that vary sharply by firm type and activity. A money remittance firm may need only 20,000 euro of initial capital, while an e-money institution needs at least 350,000 euro and a full-scope investment firm may face a permanent minimum of 750,000 pounds. Knowing which regime applies to you is the essential first step.

Because the entry-level minimum is only a floor, firms should always model their ongoing own funds requirement and hold a sensible surplus above it. Treating capital as a live part of your business plan, rather than a one-off box to tick, puts your authorisation on a stronger footing and supports a resilient firm once you are trading.

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