For founders and boards of London’s regulated businesses, getting the Senior Managers regime wrong is one of the most common and avoidable causes of delay.
London is home to thousands of businesses regulated by the Financial Conduct Authority and the Prudential Regulation Authority: banks and building societies in the City and Canary Wharf, wealth managers and hedge funds in Mayfair, payments and crypto firms in Shoreditch and King’s Cross, and a steady stream of overseas firms opening UK branches. Every one of them has to answer the same question at some point. Which of our people need to be approved by the regulator before they can do their job?
The answer sits in the Senior Managers and Certification Regime, usually shortened to SMCR. It’s a regime that most senior people in financial services know exists, but surprisingly few founders and boards understand in detail until they need to make an appointment. That gap causes real problems: offers made to candidates who then can’t start, board seats filled before approval, and applications that stall because the firm has asked for the wrong function.
What a Senior Manager Function is
The regime identifies the most senior roles in a regulated firm and gives each one a Senior Manager Function, or SMF, with its own number. SMF1 is the chief executive. SMF16 is the person responsible for compliance oversight. SMF17 is the money laundering reporting officer. SMF9 is the chair. There are around thirty in total, though no single firm needs them all.
Anyone who holds one of these functions must be approved by the regulator before they start, holds a written Statement of Responsibilities setting out what they’re accountable for, and is personally accountable if something goes wrong in their area and they didn’t take reasonable steps to prevent it. That last point is why the regime matters so much to the people who hold these roles, and why they look carefully at a firm before accepting one.
Why the right answer depends on your firm
Which functions apply depends on three things: who regulates you, how big you are and how you’re structured.
A firm regulated only by the FCA falls into one of three tiers. Most are “Core” firms, which typically need a chief executive, any executive directors on the board, a chair if they have one, a compliance officer and an MLRO. The largest solo-regulated firms are “Enhanced” and need considerably more, including heads of risk, internal audit and operations, and anyone with overall responsibility for a major business area. Some smaller firms fall into a “Limited Scope” tier with a much lighter set of requirements.
Banks, building societies and insurers are regulated by both the PRA and the FCA, and have additional functions such as the chief finance and chief risk functions, specialist insurance roles and board committee chairs. Overseas firms operating through a UK branch have their own functions again, starting with the head of the branch.
Get the designation wrong and the consequences are practical rather than theoretical. A finance director who joins the board of a Core firm needs approval as an executive director before taking the seat. A senior business head at an Enhanced firm may need approval even though they’re not on the board. An MLRO appointed without the right approval can’t lawfully perform the role. Each of these is a common mistake, and each can add months to an appointment.
The simplest way to check is to work through the functions one by one. Our guide to every SMF designation sets out each function, the firms it applies to and what the regulator expects of the person holding it.
Three London situations where it matters most
The fintech applying for authorisation. A payments, e-money or crypto business applying to the FCA has to name credible people in its application, often before it has much revenue. The compliance officer and MLRO are usually the roles the regulator scrutinises most closely, and the pool of approved people with relevant experience is small. Many young firms appoint experienced compliance leaders on a fractional basis, two or three days a week, which can work well provided the time commitment is realistic for the firm’s risks.
The growing wealth or investment firm. A Mayfair wealth manager that grows past the Enhanced threshold suddenly needs more Senior Managers, and some people who were previously outside the regime will need approval in their own right. Firms that plan for this a year ahead find it straightforward. Firms that don’t can find themselves recruiting several Senior Managers at once against a deadline.
The overseas firm opening a UK branch. London remains the first choice for overseas banks and insurers setting up in the UK. A branch needs a head of the branch approved by the regulator, and often other local Senior Managers too. The ideal candidate understands both the UK regime and the expectations of a head office abroad, which makes these some of the most specialised searches in the market.
Plan for the timetable
Even when the designation is right, Senior Manager appointments take longer than most senior hires. Experienced candidates in London typically have notice periods of three to six months, and the regulator then has its own statutory period to decide on the application. Run one after the other, an appointment can take the best part of a year. Run in parallel, with the application prepared and regulatory references gathered during the notice period, the timetable shortens considerably.
The firms that handle this well do three things. They confirm the designation and draft the Statement of Responsibilities before they start recruiting. They check whether candidates can be approved, including previous approvals and anything that might appear in a regulatory reference, before making an offer rather than after. And they keep their preferred candidate engaged through the wait, because in London’s competitive market a strong candidate’s current employer will usually try to keep them.
London’s advantage, and its challenge
London has the deepest pool of approved Senior Managers in the UK, which is a real advantage for firms hiring here. It also has the most competition for them, from banks, asset managers, insurers and fast-growing fintechs all fishing in the same pool. We’ve set out how that market works in practice, including pay, notice periods and the functions most in demand, on our page on SMF recruitment in London.
For founders and boards, the lesson is simple. Treat Senior Manager appointments as a regulatory process as well as a recruitment one. Know which functions your firm needs, plan for the approval timetable, and check that your preferred candidate can be approved before you commit. Do that, and London’s depth of talent works in your favour.
About the author: Adrian Lawrence FCA is the founder of SMF Capital, which recruits Senior Managers for FCA and PRA-regulated firms. He is a Chartered Accountant and Fellow of the ICAEW, a former listed-company Finance Director, and founder of FD Capital and The Capital Recruitment Group.
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