Own funds reporting — the four methods and the return
Own funds is the one prudential return where the calculation method is chosen rather than given — and the choice drives the data you have to collect for the rest of the institution’s life. Three methods sit in Article 9 of Directive (EU) 2015/2366 for payment services; a fourth applies to outstanding electronic money. They consume completely different inputs, and a firm that picks one without checking what it will have to produce quarterly is choosing a data-collection programme, not a formula.
1. Initial capital is the floor, not the requirement
Two separate numbers apply and both must be met. Initial capital is a fixed floor set by the services the licence covers, and Article 4 of Directive 2009/110/EC sets it for e-money institutions at not less than EUR 350,000. Own funds is a calculated ongoing requirement. The binding constraint is whichever is higher at the time, which for a growing firm shifts from the floor to the calculation.
2. The four methods, and what each consumes
| Method | Driven by | Data you must be able to produce |
|---|---|---|
| A | Fixed overheads | A defensible overhead base from the accounts |
| B | Payment volume | Executed payment volume, banded, over a defined period |
| C | An indicator built from income items | Interest and commission income and other operating income, classified consistently |
| D | Average outstanding electronic money | A daily average of the e-money float over the period |
The competent authority may adjust the resulting requirement, and the framework contemplates an adjustment of up to 20% either way based on the institution’s risk profile — so the calculated figure is a starting point that a supervisor can move.
An institution doing both payment services and e-money issuance computes on both bases: Method D for the outstanding e-money and one of A, B or C for the payment services that are not linked to e-money issuance. The two are added, which is the point most often missed in early capital planning.
3. Method D is a daily-average problem
Method D is calculated on average outstanding electronic money, and the word doing the work is average. It is not a period-end balance. Producing it requires the e-money float to be measured on a recurring basis across the period and averaged — which means a daily balance series, retained.
Firms that discover this late find they have month-end balances and no series, and cannot reconstruct one. The fix is trivial if done early — persist the daily float figure — and impossible retrospectively, which puts it firmly in the category of things to build before the first return rather than after the first query.
4. What the periodic return needs
The submission itself is short, but each line has to be derivable and defensible:
- Eligible own funds, with the composition — what qualifies, and the deductions applied.
- The requirement, on the chosen method, with the driver figures behind it.
- The surplus or deficit, and the initial-capital floor for comparison.
- Where both apply, the e-money and payment-services components separately, and their sum.
The reconciliation that matters is to the statutory accounts. Own funds is an accounting-derived figure, so a difference between the return and the ledger is either a defined prudential adjustment — which should be listed — or an error. Unattributed differences here are among the fastest ways to attract a supervisory question, because the supervisor can often see both numbers.
5. A worked case
Facts: an EMI licensed with both e-money issuance and unrelated payment services calculates its requirement on Method D alone, reasoning that e-money is the larger business.
What the rule says: Method D covers the outstanding electronic money. Payment services not linked to e-money issuance are covered by A, B or C, and the components are added rather than substituted.
What the practitioner does: splits the activity at source so the two populations are separable — which is a product and ledger question, not a reporting one — and projects the combined requirement forward against the business plan rather than computing it retrospectively each quarter. The projection is the control: it converts a capital breach from an event into a decision made months earlier.
FAQ
Do initial capital and own funds both apply?
Yes. Initial capital is a fixed floor — not less than EUR 350,000 for e-money institutions — and own funds is a calculated ongoing requirement. The binding constraint is the higher of the two.
Can a supervisor change the calculated figure?
The framework contemplates an adjustment of up to 20% either way based on the institution’s risk profile, so the calculation is a starting point rather than the final answer.
What does Method D actually need?
An average of outstanding electronic money across the period, which requires a retained daily balance series. A period-end balance is not the same figure and cannot be substituted.
Related: Own funds and initial capital · Prudential vs statistical reporting · Safeguarding accounts
