Podcast: Building Your SMF Team for FCA Authorisation
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Welcome to the SMF Capital podcast. When should you build your Senior Management Function team? For a new regulated business, it can be tempting to concentrate first on the business plan, technology, product and commercial team, and leave the senior regulatory structure until later. But the people responsible for the firm's key functions are not simply an organisational detail to be added at the end. The FCA expects individuals performing Senior Management Functions to be approved before they...
Welcome to the SMF Capital podcast.
When should you build your Senior Management Function team?
For a new regulated business, it can be tempting to concentrate first on the business plan, technology, product and commercial team, and leave the senior regulatory structure until later.
But the people responsible for the firm's key functions are not simply an organisational detail to be added at the end.
The FCA expects individuals performing Senior Management Functions to be approved before they start those roles, and firms need to demonstrate that proposed SMF candidates are fit and proper. Each SMF also has clearly allocated responsibilities.
That means building the right senior team should form part of the authorisation strategy from the outset.
You can find out more about SMF Capital's SMF Authorisation Support here:
An FCA authorisation application is ultimately about a real regulated business with real people responsible for running it.
The FCA describes SMFs as roles held by a firm's most senior decision makers, with key responsibilities allocated to them. Which functions apply depends on the firm's type and its position within the Senior Managers and Certification Regime.
For a new firm, that means asking some fundamental questions early.
Who will be responsible for compliance?
Who will oversee financial crime?
Who will be responsible for risk?
Who will run operations?
Who will lead the business?
And how will these responsibilities fit together?
The answers need to make sense as a coherent management structure.
Start With the Regulatory Model
Before recruiting individual SMF holders, the firm needs to understand which Senior Management Functions actually apply.
The SM&CR does not impose an identical structure on every regulated firm.
The requirements vary according to factors including the firm's regulatory status and, for solo-regulated firms, its SM&CR category. The FCA identifies Core, Enhanced and Limited Scope categories, with different requirements applying to each.
This is why recruitment should follow the regulatory structure rather than the other way around.
There is little value in hiring senior executives first and only afterwards trying to work out how their responsibilities fit the firm's regulatory requirements.
The Key SMF Appointments
The exact team will depend on the business.
A new financial services firm may need a combination of executive leadership, compliance oversight, financial crime expertise, risk management and operational responsibility.
For example, depending on the firm's structure, relevant functions could include:
- SMF1 — Chief Executive
- SMF2 — Chief Financial
- SMF4 — Chief Risk
- SMF16 — Compliance Oversight
- SMF17 — Money Laundering Reporting
- SMF24 — Chief Operations
Not every firm will require all of these functions, and some responsibilities may be allocated differently depending on the firm's regulatory circumstances.
The important point is to establish the correct structure before the application is submitted.
Don't Leave Compliance and Financial Crime Until the End
One of the areas where authorisation planning can go wrong is treating compliance and financial crime as late-stage appointments.
These are not simply support functions.
The FCA's SMCR framework is specifically designed to establish who has responsibility for key areas of a regulated business. SMF holders have a Duty of Responsibility and need to take reasonable steps in relation to their allocated responsibilities.
For a new firm, this means senior compliance and financial crime leadership should be considered while the wider business is being constructed.
A strong SMF team can also help shape the firm's policies, controls, governance and operating model before submission.
The Importance of Fit and Proper
Recruiting someone with the right job title is not enough.
The firm needs to be satisfied that the proposed SMF candidate is fit and proper before applying for approval.
The FCA assesses SMF applications against its fitness and propriety requirements and will only approve an application once it is satisfied that the candidate is fit and proper for the role.
That makes the recruitment process particularly important.
The candidate needs the relevant technical experience, but also the competence, judgement and personal characteristics required for the specific regulated responsibility.
Statements of Responsibilities
Every SMF holder must have a Statement of Responsibilities, setting out clearly what they are responsible and accountable for.
This is more than paperwork.
It is an opportunity to make sure the proposed management structure actually works.
For example, if compliance, risk and operations overlap, who owns which decision?
If financial crime concerns arise, who has responsibility for escalation?
If an operational failure occurs, which senior manager is accountable?
Clear allocation of responsibility helps avoid gaps and unnecessary duplication.
Building the Team Before Submission
The timing of recruitment is therefore important.
The FCA says firms should be prepared to submit a full and complete SMF application from day one.
For a new authorisation project, that means senior recruitment should not necessarily be treated as something that happens after the business plan is complete.
Instead, the SMF team can be developed alongside the authorisation process.
The people being recruited can then help test whether the proposed governance, controls and operating model are realistic.
That can be particularly valuable for fintech, payments and other businesses where the regulatory structure needs to develop alongside a new business model.
What If You Cannot Hire Everyone Immediately?
Not every firm will want or need every senior position to be full-time from the beginning.
There may also be situations where a permanent candidate has not yet been identified, or where the business needs experienced senior regulatory leadership while a longer-term appointment is being made.
In those circumstances, firms may consider appropriate fractional or interim SMF support, subject to the applicable regulatory requirements.
The objective is to avoid creating a gap in senior oversight simply because the permanent recruitment process takes time.
This can be particularly relevant during the period leading up to authorisation.
Recruiting for Authorisation Is Different
Recruiting an SMF for an established firm is one thing.
Building an SMF team for a firm seeking authorisation is different.
The candidate needs to fit the proposed regulatory structure as well as the commercial organisation.
They may also need to contribute to the development of policies, governance arrangements and operational controls before the firm is fully operational.
This is why specialist SMF recruitment can be valuable.
The recruitment process needs to understand both the executive role and the regulatory responsibility.
SMF Capital's Authorisation Support
SMF Capital works with firms preparing for FCA authorisation to help build the senior management team required for the application.
The focus is on identifying the appropriate SMF structure, recruiting credible senior candidates and considering the fit-and-proper requirements from the beginning rather than treating them as a final administrative stage.
Our SMF Authorisation Support service is designed specifically around this process.
Explore SMF Authorisation Support
Permanent SMF Recruitment
For firms that already know which functions they need to fill, SMF Capital also provides specialist recruitment for Senior Management Functions.
That includes permanent executive and non-executive searches, with the fit-and-proper assessment built into the recruitment process.
Explore SMF Recruitment Services
The aim is to make sure the people recruited are not only capable executives, but also appropriate for the specific responsibilities attached to their SMF.
Final Thoughts
Building an SMF team should not be an afterthought in an FCA authorisation project.
The senior managers are part of the firm's regulatory architecture.
Their responsibilities need to be clear, their experience needs to be relevant, and the overall management structure needs to make sense.
The FCA's current framework requires SMF holders to receive approval before starting their roles, while firms must assess their fitness and propriety and clearly allocate their responsibilities.
For a new regulated business, starting the SMF recruitment process early can therefore help connect the people, governance and regulatory framework before the application reaches its final stages.
If you are preparing an FCA authorisation application and need to build your senior management team, visit SMF Capital's SMF Authorisation Support service.
For individual permanent appointments, you can also explore SMF Recruitment Services.
SMF Capital — specialist recruitment and senior management support for FCA-regulated businesses.