A detailed explanation of FCA authorisation capital requirements – a complex but sensible set of categories.
Two Types of Requirement
Any firm that is regulated by the FCA will have two types of capital requirements: the initial capital requirement (which is a constant amount relating to the specific permission held by the firm) and the variable capital requirement (which relates to the fixed overheads of the firm and is sometimes called the firm’s fixed overhead requirement).
Which Threshold Applies to You
The activity for which you are seeking authorization will determine the starting figure for the initial capital requirement, which for example is £100,000 for an insurance intermediary, £120,000 for an investment firm and £50,000 for a consumer credit firm.
What Counts as Qualifying Capital
In terms of capital, ‘qualifying own funds’ refers to paid-up share capital and retained earnings. It does not include intangible assets, unpaid capital or loans of any description.
Evidencing Capital in Your Application
Sufficient evidence in support of the FCA authorisation application will include current balance sheet(s), a twelve month cash flow forecast and calculation which confirms the applicant’s capital exceeds the required minimum amount on the date for which approval is sought.
If Capital Falls Below the Threshold
As with the initial application, ongoing compliance matters. If the capital of a firm regulated by the FCA falls below the threshold for the firm’s permission(s) after it has received authorization, the FCA must be informed as soon as possible and steps taken to restore the capital. Failure to do so as soon as possible could lead to the FCA taking formal action.
Getting this right early on will save a lot of problems down the line.
