When own funds fall below the threshold: what to do first
If the own funds of a crypto-asset service provider or a token issuer fall below the level required for the authorisation, notify the national competent authority without delay and prepare a remediation plan. Continued operation while the shortfall persists carries supervisory risk, including restrictions on new business or, in a sustained case, withdrawal of the authorisation.
Basis
The own funds requirement for crypto-asset service providers, and for issuers of asset-referenced tokens or e-money tokens, is set out in Regulation (EU) 2023/1114 (MiCA). The obligation is continuous. It applies throughout the period of authorisation, not only at the moment the original application was assessed. A firm authorised under this regime is expected to monitor its own funds figure on an ongoing basis, using its own internal controls, and to identify a shortfall before the competent authority raises the question. The regulation does not treat the threshold as a formality checked once a year; it treats it as a condition of continued authorisation.
Practical consequence
A confirmed shortfall changes the supervisory relationship immediately, even before any formal decision is issued. The competent authority can increase the frequency of reporting, request an updated business or wind-down plan, and limit the onboarding of new clients until the position is restored. None of this depends on whether the shortfall was caused by trading losses, an accounting adjustment, or a capital distribution — the trigger is the figure itself, not the cause behind it.
The internal governance impact is separate from the supervisory one. A shortfall usually forces the management body to reconsider planned spending, hiring, and any dividend or capital distribution until the remediation plan is accepted. Boards that treat the notification as a pure compliance task, without adjusting the operating budget, tend to submit weaker plans on the first attempt.
If a customer separately raises A customer demands an audit data protection while the remediation plan is being prepared, keep both files under one internal owner but do not merge them. The supervisory file and the customer file answer different questions and go to different addressees.
What to do first
The sequence below assumes the shortfall has already been identified internally. It does not assume the cause is known, since the cause can be established in parallel with the first three steps.
| Step | Who acts | Basis for the deadline |
|---|---|---|
| Confirm the shortfall against current management accounts | Finance function | Internal control framework |
| Notify the competent authority | Compliance officer or management body | Procedural rules of the authority |
| Draft and submit a remediation plan | Management body | Timeline set by the authority, case by case |
| Move to enhanced reporting | Compliance function | Supervisory expectation once notified |
| Freeze discretionary spending and distributions | Management body | Internal governance decision, not a regulatory deadline |
Work through the table in order, not in parallel with unrelated corporate matters competing for the same signatures. If a trade mark dispute is also live and When a coexistence agreement is proposed lands on the same desk, assign it to a different case owner. The remediation deadline should not compete with an unrelated negotiation for the same attention.
Who decides
The national competent authority that granted the authorisation decides whether the remediation plan is adequate. It works from the figures the firm submits, from the notification itself, and from any prior supervisory correspondence on the same entity. Evidence typically includes recent management accounts, a capital projection covering the remediation period, and a description of the measures the firm intends to take.
There is no separate court stage at this point. The authority acts through its own supervisory powers, and a formal appeal route only opens once the authority issues a decision, not before. Firms that try to escalate to a court before a decision exists generally find there is nothing yet to appeal against.
Forks
- If the shortfall is temporary and explained by a one-off event, the remediation plan can focus on restoring the figure rather than restructuring the business.
- If the shortfall is structural — recurring losses, a shrinking client base, rising cost base — the plan needs to address the underlying model, not only the balance sheet.
- If the firm holds more than one authorisation across different entities, coordinate the notification so the same shortfall is not reported inconsistently to different authorities.
- If, in parallel, What to do first in this situation is also open because a development partner claims joint ownership of core software, resolve the ownership question before that software is counted as an asset in the remediation plan.
- If a token issued by the firm is affected because A right is pledged on-chain tokenised rights, disclose the pledge to the authority as part of the own funds calculation. An encumbered asset is not freely available capital.
Limit
This page does not calculate the own funds figure for a specific licence category, and it does not set out the percentage or formula applicable to any particular activity. That calculation depends on the category of authorisation held and on the firm's own risk profile, and it is not fixed by this page. It also does not cover the withdrawal procedure once the authority has already issued a decision, or the separate question of what the firm may continue to offer commercially while the plan is running. Those are different situations, each with its own sequence of steps.
Verified
Checked against Regulation (EU) 2023/1114 (MiCA), current as of 15 January 2025. No case law is cited on this page, because none carries a confirmed status on this exact question at the time of writing.
Related situations
See also When a key function holder resigns, another point where the same authority expects a notification before it asks for one.
FAQ
What is the first step when own funds fall below the threshold?
Confirm the figure against current management accounts, then notify the competent authority. Do not wait for the next scheduled report to raise it.
Which deadline is already running?
The notification duty starts running from the moment the shortfall is identified internally, not from the moment it is formally confirmed. The exact number of days for notification and for the remediation plan is set by the competent authority's own procedural rules, not by Regulation (EU) 2023/1114 (MiCA) itself, and it is confirmed case by case with that authority.
Who decides, and on what evidence?
The national competent authority that granted the authorisation decides, based on the submitted figures, the notification, and the remediation plan. It may request further evidence, including updated projections, before accepting the plan.