How much capital does a UK cryptoasset firm need? CRYPTOPRU own funds explained
The FCA’s new prudential regime introduces minimum capital requirements for cryptoasset firms operating in the UK. For businesses approaching FCA authorisation for the first time, understanding these requirements is an important part of financial planning.
On 30 June 2026, the FCA published its final prudential rules in Policy Statement PS26/12. The rules, principally set out in COREPRU and CRYPTOPRU, will apply under the new cryptoasset regulatory regime from 25 October 2027. The application window opened on 30 September 2026 and closes on 28 February 2027 for firms seeking to benefit from the relevant transitional arrangements.
For founders, the immediate question is straightforward: how much regulatory capital will the business need?
The answer depends on three factors: the activities the firm intends to carry on, its operating costs and the scale and risk of its business.
This article explains how the own funds requirement is calculated, illustrates the rules through a worked example and identifies practical considerations for firms preparing their first FCA authorisation application.
The short answer: three calculations, one minimum requirement
Under CRYPTOPRU, a cryptoasset firm must generally hold eligible own funds at least equal to the highest of three requirements:
- Permanent minimum requirement (PMR): a fixed capital floor determined by the firm’s regulated activities.
- Fixed overheads requirement (FOR): an amount based on one quarter of the firm’s relevant annual expenditure.
- K-factor requirement (KFR): a risk-based requirement reflecting the scale and nature of the firm’s activities, including client assets, orders, trading and exposures.
These requirements are compared, rather than added together. Whichever produces the highest amount determines the firm’s baseline regulatory own funds requirement.
However, this is not necessarily the total capital the business will need. Firms must also assess whether additional financial resources are necessary to address their risks and ensure an orderly wind-down if the business cannot continue.
For firms operating under more than one prudential regime, additional requirements may also be relevant.
1. Permanent minimum requirement: capital depends on permissions
The PMR is the simplest component of the calculation. It establishes a fixed minimum level of capital based on the activities the firm is authorised to undertake.
Under CRYPTOPRU 4.2, the requirements are:
| Regulated activity | PMR |
|---|---|
| Dealing in qualifying cryptoassets as agent | £75,000 |
| Arranging deals in qualifying cryptoassets | £75,000 |
| Operating a qualifying cryptoasset trading platform | £150,000 |
| Safeguarding cryptoassets | £150,000 |
| Arranging qualifying cryptoasset staking | £150,000 |
| Issuing a qualifying stablecoin | £350,000 |
| Dealing in qualifying cryptoassets as principal | £750,000 |
Where a firm holds several permissions, the highest applicable PMR applies. The individual amounts are not added together.
For example, a firm authorised to operate a trading platform and safeguard client cryptoassets would have a PMR of £150,000, not £300,000.
However, if the same firm also obtained permission to deal as principal, its PMR would increase to £750,000.
What this means for founders
The scope of the authorisation application has a direct impact on capital requirements.
Firms should carefully distinguish between activities they genuinely intend to undertake and those they might consider offering in the future. Seeking a permission simply to preserve future flexibility can create significant additional capital and compliance obligations.
Permissions should reflect the firm’s actual and planned business model, supported by an appropriate analysis of the regulatory perimeter.
2. Fixed overheads requirement: capital linked to operating costs
The FOR is calculated as:
FOR = Relevant annual expenditure ÷ 4
The requirement broadly reflects the cost of maintaining the business over a three-month period, including during an orderly wind-down.
Importantly, the calculation considers the relevant expenditure of the firm as a whole, rather than only the costs directly attributable to its regulated cryptoasset activities.
What expenditure is included?
Relevant expenditure will generally include recurring operational costs such as salaries, technology infrastructure, premises, compliance support and other costs necessary to operate the business.
Certain expenditure may be deducted, subject to the detailed rules in COREPRU 4.3. Examples include fully discretionary staff bonuses and non-recurring expenses arising from non-ordinary activities.
PS26/12 also confirms that blockchain network transaction fees, commonly known as gas fees, are treated in the same way as broker and trading venue fees. Firms may deduct:
- 100% of gas fees passed on to customers; and
- 80% of other gas fees.
These deductions recognise that some transaction-related expenses would reduce as a firm’s activities were wound down.
Conversely, recurring technology, cybersecurity, compliance and shared-service costs should not be assumed to be deductible. Costs incurred on the firm’s behalf by third parties may also need to be included.
What should applicants use as their cost base?
The calculation depends partly on how long the firm has been operating.
Firms that have been in business for less than one year must use projected relevant expenditure for their first 12 months of trading, as submitted in their authorisation application.
Established firms generally calculate the requirement using relevant expenditure from their preceding annual financial statements, subject to the rules governing material changes.
A firm must recalculate its FOR where projected relevant annual expenditure increases by 30% or more, or where the increase would raise the FOR by £2 million or more. A material reduction does not automatically allow a lower requirement: prior FCA permission is needed to substitute the reduced FOR where the relevant rules apply.
What this means for founders
A firm’s current cost base may not be representative of the business it plans to operate after authorisation.
For example, a business with £1.2 million of relevant annual expenditure would have:
FOR = £1,200,000 ÷ 4 = £300,000
That is twice the £150,000 PMR applicable to a standalone trading platform operator.
For a small cryptoasset business, the cost of becoming regulated may itself increase the FOR. Recruitment of compliance and risk personnel, external assurance, safeguarding arrangements and investment in systems and controls should therefore be reflected in financial projections.
3. K-factor requirement: capital linked to business activity and risk
While the PMR establishes a fixed floor and the FOR reflects operating costs, K-factors link capital requirements to the scale and risk profile of the firm’s activities.
The KFR is calculated by adding together all applicable K-factor requirements.
CRYPTOPRU specifies eight K-factors:
| K-factor | What it measures |
|---|---|
| K-RCS | Cryptoassets safeguarded for clients, charged at 0.04% of the relevant average value |
| K-CCS | Client cryptoassets staked, charged at 0.04% of the relevant average value |
| K-CCO | Client cryptoasset orders handled, charged at 0.1% of average order value |
| K-CTF | Cryptoasset trading flow executed in the firm’s own name, charged at 0.1% of average flow |
| K-NCP | Market risk arising from net qualifying cryptoasset positions in the trading book |
| K-CCD | Counterparty default risk on relevant cryptoasset transactions |
| K-CON | Concentration risk arising from exposures to individual counterparties or connected groups |
| K-SII | Qualifying stablecoins in issuance, charged at 1% of the relevant average value |
Not every K-factor applies to every firm. The calculation depends on the firm’s permissions and how it conducts its activities.
For example, a business that only arranges client transactions will generally have a different K-factor profile from a firm that trades in its own name or holds significant positions in cryptoassets.
The distinction is particularly important for K-NCP. Under the final rules, qualifying cryptoassets that satisfy the relevant valuation and UK trading-platform admission conditions are generally subject to a 40% net position risk charge. Firms with substantial trading-book positions may therefore face significant capital requirements.
How are average values calculated?
For several K-factors, the FCA prescribes a historical averaging methodology.
Under the standard approach, firms use daily observations from the preceding nine months, exclude the most recent three months and calculate the average across the remaining six months.
Specific alternative methodologies apply where a firm has less than nine months of relevant activity data. These include estimation requirements for newly operating businesses.
The rules also address potential double counting. For example, qualifying cryptoassets already included in K-RCS are not also included in K-CCS merely because the firm arranges staking of those same assets.
What this means for founders
The KFR can change materially as the business grows.
A firm that initially handles a limited number of customer orders may have a relatively small K-factor requirement. However, growing client assets, higher trading volumes, substantial stablecoin issuance or exposure to cryptoasset market risk can increase the requirement.
Capital planning should therefore reflect the firm’s expected growth, rather than relying exclusively on current activity levels.
4. Worked example: a UK cryptoasset exchange
Consider a UK exchange preparing for authorisation.
The business intends to operate a qualifying cryptoasset trading platform and safeguard client cryptoassets. It will not deal as principal or execute transactions in its own name.
Its financial projections and activity assumptions are:
| Business assumption | Amount |
|---|---|
| Relevant annual expenditure | £1,200,000 |
| Average client cryptoassets safeguarded | £80,000,000 |
| Average daily client cryptoasset orders handled | £5,000,000 |
For illustration, assume these activity figures represent the averages determined under the applicable K-factor methodology, and that no other K-factors apply.
Step 1: Calculate the three requirements
| Component | Calculation | Requirement |
|---|---|---|
| PMR | Highest applicable permission-based minimum | £150,000 |
| FOR | £1,200,000 ÷ 4 | £300,000 |
| K-RCS | £80m × 0.04% | £32,000 |
| K-CCO | £5m × 0.1% | £5,000 |
| Total KFR | K-RCS + K-CCO | £37,000 |
| Own funds requirement | Highest of PMR, FOR and KFR | £300,000 |
In this example, the FOR is the binding requirement.
Although the business safeguards £80 million of client cryptoassets, its annual operating expenditure produces a higher own funds requirement than its K-factors.
Now consider what would happen if the exchange also obtained permission to deal as principal.
Its PMR would increase to £750,000, making that the binding minimum under the figures above. Depending on its actual trading activities, it could also incur additional K-NCP, K-CTF or other applicable requirements.
The choice of permissions can therefore materially affect both the minimum capital requirement and the business’s wider prudential obligations.
5. What actually counts as regulatory capital?
Calculating the requirement is only part of the exercise. Firms must also establish how much eligible regulatory capital they hold.
Regulatory own funds are not necessarily the same as the company’s accounting equity, cash balance or total assets.
Under COREPRU, eligible own funds comprise three categories:
- Common Equity Tier 1 (CET1): the highest-quality capital, generally including eligible ordinary share capital and reserves, after applicable adjustments and deductions.
- Additional Tier 1 (AT1): qualifying capital instruments designed to absorb losses, subject to specific eligibility conditions.
- Tier 2: qualifying subordinated capital instruments that satisfy the relevant regulatory criteria.
Most smaller cryptoasset firms are likely to rely predominantly on CET1 capital, particularly paid-up ordinary share capital and retained earnings.
The rules also restrict the proportion of the requirement that can be satisfied using lower-tier capital:
| Capital category | Minimum proportion of own funds requirement |
|---|---|
| CET1 | 56% |
| CET1 plus AT1 | 75% |
| Total eligible own funds | 100% |
Capital instruments must meet the applicable regulatory eligibility conditions. An ordinary shareholder loan, for example, should not be assumed to qualify simply because it provides funding to the business.
Deductions that firms should pay particular attention to
The FCA requires firms to make regulatory adjustments to accounting capital. These are intended to ensure that recognised own funds can absorb losses, including during financial stress.
Three areas are particularly relevant to cryptoasset businesses.
Intangible assets. Capitalised software development expenditure and other intangible assets are generally deducted from CET1, subject to the limited treatment of associated deferred tax liabilities. This can be significant for technology-led businesses that capitalise substantial development costs.
Cryptoasset holdings. Cryptoassets classified as intangible assets under the applicable accounting standards are subject to the intangible-assets deduction. Separate rules require deductions for certain qualifying cryptoassets that cannot be prudently valued or are not admitted to a UK qualifying cryptoasset trading platform.
Connected-party cryptoassets. Holdings of qualifying cryptoassets issued by, or whose supply is controlled by, the firm or specified connected parties must generally be deducted. The rules include an exception for CASS 16 stablecoins, as well as provisions to prevent double deductions.
These rules mean that an asset may have a positive value in the company’s financial statements but contribute little or nothing to its eligible regulatory own funds.
Worked example: calculating eligible own funds
Returning to the exchange, assume that it has raised £1 million in paid-up share capital and has the following financial position:
| Item | Amount |
|---|---|
| Paid-up share capital | £1,000,000 |
| Accumulated losses | (£250,000) |
| Capitalised platform development costs | (£120,000) |
| Bitcoin treasury classified as an intangible asset | (£90,000) |
| Eligible own funds | £540,000 |
This simplified calculation assumes no other regulatory adjustments, deductions or capital eligibility issues.
Against an own funds requirement of £300,000, the firm has £240,000 of regulatory capital headroom.
However, that headroom must be considered in the context of future financial performance.
If the business continues to incur accounting losses of £60,000 per month, and all other factors remain unchanged, its headroom would be exhausted in approximately four months.
The position could deteriorate sooner if operating expenditure increases or trading activity causes the KFR to rise.
This illustrates why satisfying the own funds requirement at the point of authorisation is not enough. A firm needs to demonstrate that it can maintain adequate capital as its business develops.
6. Capital is not the same as liquidity
Alongside own funds, firms must maintain sufficient liquid assets.
Under COREPRU 6.2, the basic liquid assets requirement is calculated as:
One-third of the FOR + 1.6% of relevant guarantees provided to clients
Using the exchange example, and assuming it provides no relevant client guarantees:
Basic liquid assets requirement = £300,000 ÷ 3 = £100,000
The firm would therefore need to maintain at least £100,000 of eligible core liquid assets alongside its own funds requirement.
Core liquid assets are subject to specific eligibility rules. They can include qualifying cash, bank deposits and certain high-quality short-term financial assets. Cryptoassets, including UK-issued qualifying stablecoins, are not currently included among the standard eligible core liquid assets.
The firm’s own risk assessment may identify a need for additional liquidity, including to meet short-term obligations, manage financial stress or fund an orderly wind-down. Qualifying stablecoin issuers may also face a separate issuer liquid assets requirement.
For founders, the distinction is important: a firm can have sufficient regulatory capital on paper but still face a liquidity shortfall.
Own funds and liquid assets must therefore be assessed together. These are distinct requirements, although an eligible asset may be capable of supporting both calculations where the rules permit.
7. Common issues when preparing an application
For firms encountering prudential regulation for the first time, several issues warrant particular attention.
Focusing only on the permanent minimum
The PMR is relatively straightforward to identify, which can make it an attractive starting point for financial planning.
However, a £150,000 PMR does not mean that £150,000 will be sufficient. The FOR or KFR may be significantly higher.
Firms should calculate all applicable components before establishing their capital targets.
Underestimating the cost of operating as an authorised firm
Current expenditure may not reflect the cost of the future regulated business.
Financial projections should incorporate realistic assumptions for personnel, compliance, safeguarding, assurance, technology and other regulatory obligations.
These costs may increase both the firm’s funding needs and its FOR.
Overstating eligible capital
A healthy accounting balance sheet does not automatically translate into sufficient regulatory own funds.
Firms should reconcile accounting equity to regulatory capital, applying the relevant deductions and verifying the eligibility of capital instruments.
This is particularly important where the company has capitalised development expenditure, material cryptoasset holdings or funding arrangements with shareholders.
Failing to account for continuing losses
A firm may satisfy its own funds requirement at authorisation but fall below it during its first year of regulated operations.
Forecasts should show how own funds, regulatory requirements and capital headroom develop over time. This should include consideration of downside scenarios and the timing of any planned capital injections.
Future fundraising should not be treated as guaranteed funding unless there is sufficient evidence to support that assumption.
Applying for permissions that exceed the business model
Additional permissions may result in higher permanent minimum requirements, additional K-factors and wider governance or reporting obligations.
The permissions sought should match the activities the firm intends to undertake, rather than representing an unrestricted list of possible future services.
8. What should firms do now?
For firms preparing an FCA application, the own funds assessment should form part of the wider business planning process rather than being completed shortly before submission.
A practical starting point is to establish:
- The permissions required. Map each product and service to the relevant regulated activity and determine the applicable PMR.
- A realistic expenditure forecast. Include the costs of operating as an authorised firm and identify deductions permitted under COREPRU.
- Activity-based projections. Estimate client assets, order flow, stablecoin issuance and relevant market or counterparty exposures to calculate applicable K-factors.
- An eligible own funds reconciliation. Identify regulatory deductions and confirm the eligibility of existing and proposed capital instruments.
- Capital and liquidity forecasts. Model the firm’s position over time, including operating losses, changes in requirements, additional resources identified by the overall risk assessment and potential wind-down costs.
These calculations should be supported by documented assumptions and reconciled to the firm’s business plan and financial forecasts.
Conclusion
The CRYPTOPRU own funds framework is designed to ensure that cryptoasset firms maintain financial resources appropriate to their activities, operating costs and risks.
For smaller firms, the calculation is manageable once the underlying assumptions are established. The greater challenge is making sure those assumptions reflect the business that will actually operate after authorisation.
A firm needs to understand which permissions it requires, what its authorised operating model will cost, how its regulatory capital is calculated and whether it can maintain sufficient financial resources as the business grows.
The objective is not simply to demonstrate that the firm has enough capital on day one. It is to demonstrate that the business can remain adequately capitalised and liquid throughout its regulated operations, including under adverse conditions.
Addressing these questions early gives founders a clearer view of the funding required, supports a more credible authorisation application and reduces the risk of unexpected capital constraints after authorisation.
Regulatory references
- FCA PS26/12: A Prudential Regime for Cryptoasset Firms, published 30 June 2026.
- FCA Handbook: COREPRU 3 (Own funds), COREPRU 4 (Own funds requirements) and COREPRU 6 (Basic liquid assets requirement).
- FCA Handbook: CRYPTOPRU 4 (Permanent minimum and K-factor requirements).
- FCA guidance: Preparing for the new cryptoasset regulatory regime.
This article provides general information on the FCA’s prudential framework as set out in PS26/12 and the associated Handbook provisions. It is not legal or regulatory advice. The rules applicable to an individual firm will depend on its permissions, activities, structure and circumstances. Firms should review the relevant Handbook provisions and obtain professional advice where appropriate.