For a business preparing for FCA authorisation, recruiting the right senior management team is one of the most important decisions it will make.
The FCA does not assess a regulated business solely on its business plan or financial resources. It also needs to understand who will be responsible for running the firm, how responsibilities will be allocated and whether the individuals performing Senior Management Functions are suitable for their roles.
This makes SMF recruitment an important part of the authorisation process.
A firm may have a strong commercial proposition, experienced founders and significant investment behind it, but it still needs the appropriate governance and senior regulatory expertise to operate effectively as an authorised business.
What is an SMF?
A Senior Management Function, or SMF, is a controlled function performed by an individual who has a defined level of responsibility within a regulated firm.
Under the Senior Managers and Certification Regime, certain senior individuals must be approved by the relevant regulator before carrying out their functions.
The precise requirements depend on the firm's regulatory status, activities and structure.
Common examples include:
SMF1 Chief Executive
SMF2 Chief Finance
SMF4 Chief Risk
SMF9 Chair
SMF16 Compliance Oversight
SMF17 Money Laundering Reporting Officer
SMF24 Chief Operations
Not every firm will require every function.
The important issue is determining which functions apply to the firm's particular regulatory structure and then finding people with the appropriate experience.
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Why SMF recruitment should start early
One of the mistakes businesses can make is treating SMF recruitment as something that happens after the FCA authorisation application has been prepared.
In reality, the senior management structure can influence the application itself.
The FCA needs to understand who is responsible for what.
This means firms should consider their senior management structure, governance arrangements and allocation of responsibilities at an early stage.
For a new regulated business, this can involve recruiting several senior individuals rather than simply appointing one regulatory specialist.
The firm's proposed structure might require a CEO, CFO, Compliance Officer, MLRO, COO or other senior managers depending on its activities.
Finding these people can take time.
Specialist candidates with relevant regulated financial services experience are not always available immediately, and experienced SMF candidates may already be employed elsewhere.
Starting the recruitment process early can therefore give a firm considerably more time to identify suitable candidates.
The importance of the Statement of Responsibilities
The Statement of Responsibilities is an important part of the Senior Managers Regime.
It records the areas of the firm's business for which an individual is responsible.
This means an SMF candidate should not simply be selected because they have an impressive job title.
Their actual experience needs to make sense in relation to the responsibilities they are expected to assume.
For example, someone who has worked as a finance director may have substantial accounting experience, but the firm needs to establish whether that experience is appropriate for the responsibilities attached to the proposed senior finance function.
The same principle applies to compliance, risk, operations and other functions.
Recruitment should therefore consider the proposed responsibilities from the beginning.
Experience matters, but context matters too
Two candidates can have apparently similar CVs but very different levels of relevance to a particular SMF appointment.
Consider a hypothetical CFO search.
One candidate might have spent 15 years working for a major bank.
Another might have spent 10 years as CFO of smaller regulated fintech businesses.
Which background is more relevant will depend on the role.
The firm's size, business model, regulatory permissions, governance structure and growth plans all matter.
This is why specialist SMF recruitment requires more than searching for keywords on a CV.
The candidate's previous responsibilities need to be understood in context.
Recruiting an SMF16 Compliance Officer
Compliance appointments are particularly important because the individual may have a central role in maintaining the firm's regulatory framework.
An SMF16 candidate needs appropriate knowledge, experience and seniority for the firm's circumstances.
The search may need to consider experience across areas such as:
FCA regulation
Compliance monitoring
Regulatory reporting
Financial crime
Conduct risk
Policies and procedures
Regulatory change
Governance
Board reporting
The precise requirements will depend on the firm's activities.
For businesses entering a new regulated market, finding a compliance professional who understands both the regulatory environment and the firm's commercial model can be particularly valuable.
Recruiting an SMF17 MLRO
The Money Laundering Reporting Officer has a specific role in a firm's financial crime framework.
An SMF17 appointment therefore needs to be assessed against the firm's actual exposure to money laundering and terrorist financing risks.
A payments business, investment manager and consumer finance company may have very different risk profiles.
A candidate who has experience in one sector may therefore not automatically have the appropriate background for another.
Specialist recruitment can help firms identify candidates whose previous responsibilities are relevant to the risks they will be expected to manage.
Recruiting an SMF2 CFO
Financial leadership can also have an important regulatory dimension.
An SMF2 CFO may have responsibilities extending beyond conventional management accounting and financial reporting.
Depending on the firm, the role can involve financial resources, regulatory requirements, capital, liquidity, forecasting, governance and interaction with the board and regulators.
This means a firm recruiting an SMF2 should look beyond the candidate's accounting qualifications.
The question is whether the individual's experience is appropriate for the regulatory and commercial responsibilities of the particular firm.
Interim SMF appointments
Sometimes a firm does not have the luxury of conducting a long permanent search.
A senior manager may resign.
A business may be preparing for an authorisation application.
A new regulated operation may need experienced leadership while a permanent executive is recruited.
An interim or fractional SMF appointment may provide a solution.
This can give a firm access to experienced regulatory leadership while it conducts a permanent search or manages a particular transition.
However, the regulatory requirements still need to be considered. The fact that an appointment is interim does not remove the importance of the relevant regulatory approval and responsibilities.
Building a complete SMF team
For some businesses, the challenge is not finding one individual.
It is building an entire management team.
A new financial services business may need to recruit several people with complementary responsibilities.
The firm might require:
Chief Executive
Overall executive leadership and responsibility for the business.
Chief Finance
Financial management and oversight.
Compliance Oversight
Senior compliance responsibility.
MLRO
Financial crime and money laundering reporting responsibilities.
Chief Operations
Operational management and oversight.
Chief Risk
Risk management where the function applies.
The precise combination depends on the firm's regulatory classification and activities.
The recruitment challenge is therefore partly about finding individuals and partly about ensuring that the individuals work together as an effective governance structure.
Why specialist recruitment can help
SMF recruitment requires an understanding of both executive search and financial services regulation.
A general executive recruiter may be highly effective at finding senior executives but may not specialise in the specific requirements surrounding Senior Manager Functions.
A specialist SMF recruiter approaches the search differently.
The starting point is the regulatory responsibility.
The search then considers the experience required to perform that responsibility effectively.
This can make the candidate assessment much more relevant to the firm's actual needs.
SMF Capital
SMF Capital specialises in Senior Manager Function recruitment.
The business works with regulated firms and businesses preparing for FCA authorisation to identify senior executives and non-executives for regulated leadership positions.
Services include:
SMF recruitment
FCA authorisation recruitment support
Permanent SMF appointments
Interim SMF recruitment
Fractional SMF appointments
Executive and non-executive search
Compliance and MLRO recruitment
CFO and finance leadership recruitment
Board and governance appointments
The firm's specialist focus means that recruitment can be considered alongside the regulatory responsibilities attached to the appointment.
For businesses preparing for FCA authorisation, this can be particularly important because the management structure needs to support the firm's proposed regulatory model.
Start your SMF recruitment early
Building a suitable senior management team should not be left until the final stages of an FCA authorisation project.
The right candidates may take time to identify, assess and appoint.
Starting early gives a firm more opportunity to consider the available market and ensure that its proposed senior management structure reflects its actual business and regulatory responsibilities.
SMF Capital provides specialist Senior Manager Function recruitment and FCA authorisation support.
To discuss an SMF appointment or the recruitment of a wider regulatory management team, visit SMF Capital.
For businesses preparing an FCA application, see SMF Authorisation Support.
You can also read Senior Manager Functions Explained for an overview of the different SMF designations.
