For most of the last decade, a small FCA-regulated firm that needed an approved compliance officer had two choices. It could hire someone full-time, often paying for more seniority than the business could use, or it could promote someone who wasn't quite ready and hope the regulator agreed. Neither was ideal.
A third option is now firmly established: the fractional Senior Manager. An experienced, approved compliance officer, MLRO, risk leader or CFO works for the firm one, two or three days a week, usually alongside similar roles at other firms. For many smaller wealth managers, payment firms, brokers and fintechs, it has become the default way to put credible leadership into the functions the regulator cares about most.
What "Fractional" Means Under the Senior Managers Regime
Under the Senior Managers and Certification Regime, certain roles are Senior Manager Functions. The compliance oversight function (SMF16) and the money laundering reporting officer (SMF17) are the two that almost every regulated firm needs. Whoever holds them must be approved before they start, has a Statement of Responsibilities setting out what they are accountable for, and is personally accountable if things go wrong in their area and they didn't take reasonable steps to prevent it.
None of that changes because someone works part-time. A fractional Senior Manager carries exactly the same accountability as a full-time one. The difference is how the time is organised, and that is where the regulator's attention goes: does the arrangement give the firm enough senior oversight for its size and risks?
https://pbase.com/smfcapital/image/176585794
https://smfcapital.mystrikingly.com/
https://smfcapital.photoshelter.com/about
https://hackmd.io/@smfcapital/smfcapital
https://smfcapital.mypixieset.com/
Why Firms Are Choosing It
The reasons are practical. A small firm rarely needs a senior compliance officer five days a week, but it does need one with the judgement and standing that only comes with experience. A fractional arrangement buys that experience at a cost proportionate to the business.
There's also a supply reason. The number of people who have already held an SMF and can show the regulator they're ready is limited, and many of the best have chosen portfolio careers. Firms that insist on a full-time hire are fishing in a much smaller pool.
We have seen the model work well across very different roles. One of our recent placements was a fractional Chief Risk Officer for a wealth management firm, working three days a week. The firm wanted genuine senior risk leadership and board-level challenge, but not a full-time executive. Another was a combined SMF16 and SMF17 for a stablecoin business, where one experienced person holds both compliance oversight and the MLRO role. Both are described on our case studies page.
When It Works, and When It Doesn't
Fractional tends to work whenFractional tends to struggle when
The firm is small, with relatively stable activitiesThe firm is growing fast or launching new products
There is a capable team below the Senior ManagerThe Senior Manager would be doing everything personally
The time commitment is realistic and reviewedThe days agreed are a fraction of what the role needs
The Senior Manager can respond quickly outside agreed daysUrgent matters wait until the next scheduled day
Other commitments are disclosed and manageableThe Senior Manager is spread across too many firms
The single most common failure is under-estimating the time. A compliance officer contracted for one day a week at a firm that genuinely needs three won't be able to take reasonable steps, however capable they are. The regulator may well ask exactly that question when it reviews the application.
Getting the Arrangement Right
Most problems with fractional Senior Managers can be traced back to an agreement that didn't reflect the regulatory reality. The essentials are:
- A clear Statement of Responsibilities, agreed before the appointment, so both sides know exactly what the Senior Manager is accountable for.
- A realistic, reviewable time commitment, with a mechanism for more time during busy periods such as a regulatory visit.
- Availability for urgent matters, including regulatory contact, on days the Senior Manager isn't scheduled to work.
- Cover for absence, so the function is never left unattended.
- Full access to systems, records, people and the board.
- Disclosure of other roles and a process for managing conflicts.
- Insurance that actually covers them, because many directors' and officers' policies assume the insured person is an employee.
- Notice periods long enough to find and approve a replacement.
We've set these out in more detail in a guide to what a fractional SMF agreement should cover, including the IR35 questions that arise when a fractional Senior Manager works through their own company.
A Stepping Stone as Well as a Solution
Fractional arrangements don't have to be permanent. For many firms, a fractional compliance officer is the right answer at authorisation and for the first years of trading. As the business grows, the role may become full-time, or the fractional Senior Manager may be joined by a deputy who eventually takes over. Planning for that transition from the start makes it much smoother.
The same flexibility suits interim situations. When a compliance officer or MLRO leaves unexpectedly, an approved interim or fractional Senior Manager can hold the function while the firm recruits properly, rather than rushing into a permanent hire. Our page on fractional and interim SMF cover explains how these arrangements are typically structured.
What It Means for Firms Planning a Hire
If you run a smaller regulated firm and need a compliance officer, MLRO or risk leader, it's worth asking a different question from "full-time or not?" The better question is: what level of experience does this role need, and how much of that person's time does the firm genuinely require? Framed that way, fractional is often the answer that gives the firm the strongest leadership for its budget, and the most credible position with the regulator.
For firms that need a full-time appointment, the same discipline applies: be clear about accountability, realistic about time and honest about resources. That is what the regulator looks for, and it is what good candidates look for too. Our compliance officer recruitment page covers permanent, interim and fractional SMF16 appointments.
About the author: Adrian Lawrence FCA is the founder of SMF Capital, which recruits permanent, interim and fractional 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. He leads every SMF Capital search personally.
