Podcast: SMF24 — Running Operations With the Regulator Watching

Today we're looking at SMF24, the Chief Operations Function — a Senior Management Function that has become increasingly important as operational resilience, technology risk and third-party dependency have moved much closer to the centre of regulatory supervision. The modern Chief Operating Officer in a regulated business is no longer simply responsible for making sure the organisation runs smoothly. The role can involve responsibility for the systems, processes, technology and operational inf...

Today we're looking at SMF24, the Chief Operations Function — a Senior Management Function that has become increasingly important as operational resilience, technology risk and third-party dependency have moved much closer to the centre of regulatory supervision.

The modern Chief Operating Officer in a regulated business is no longer simply responsible for making sure the organisation runs smoothly.

The role can involve responsibility for the systems, processes, technology and operational infrastructure that allow the firm to deliver its important business services

You can read our detailed guide here:
https://www.smfcapital.co.uk/smf24-explained-what-the-fca-expects-from-a-chief-operations-function/

What Is SMF24?

SMF24 is the Chief Operations Function.

At its core, the role concerns the operational infrastructure of a regulated business — the processes, systems, technology and resources required to keep the organisation functioning effectively.

The exact responsibilities will depend on the firm's structure and the responsibilities allocated to the individual.

But the direction of travel is clear: operational issues can become regulatory issues very quickly.

A major technology failure, cyber incident, third-party outage or disruption to an important business service can potentially affect customers and market integrity.

Consequently, operational leadership can carry significant regulatory importance.

How Operational Resilience Has Changed the Role

Operational resilience has changed the expectations surrounding senior operations leadership.

Regulated firms need to understand which business services are important, consider the impact of disruption, establish appropriate tolerances and test whether the organisation can continue operating during severe but plausible disruption scenarios.

For an SMF24 holder, this means operational resilience cannot simply be treated as a policy document owned by another department.

The COO needs to understand how the framework operates in practice.

What happens if a critical system fails?

What happens if a major technology provider becomes unavailable?

What happens following a serious cyber incident?

Can the business continue delivering its important services?

And can management demonstrate that it has tested its assumptions?

These are operational questions, but they can also become questions for senior management and the regulator.

Third-Party and Outsourcing Risk

Modern financial services firms often rely on extensive networks of third-party providers.

Cloud platforms, technology providers, payment systems, outsourced operations and specialist service providers can all become critical to the firm's ability to operate.

This creates another important dimension to the SMF24 role.

A strong Chief Operating Officer needs to understand not only whether an outsourced service works efficiently, but also what happens if it stops working.

That means considering resilience, dependency, concentration risk, contingency arrangements and exit planning.

The more dependent a firm becomes on external providers, the more important operational oversight becomes.

Technology and Change Management

Technology transformation is another major part of modern operations leadership.

Firms regularly introduce new platforms, migrate systems, automate processes or change their operating models.

Change can create significant operational risk if it is poorly managed.

An experienced SMF24 candidate should therefore be able to demonstrate that they have managed major change programmes while maintaining appropriate controls and business continuity.

The question during recruitment is not simply:

"Have you managed technology projects?"

It is:

"Have you managed operational risk while the business was changing?"

That distinction can be extremely important in a regulated environment.

What Makes a Strong SMF24 Candidate?

A strong SMF24 candidate will generally need a combination of operational leadership, regulatory awareness and practical experience.

Relevant experience might include:

• Leading operations within a regulated financial services business
• Managing operational resilience programmes
• Overseeing critical third-party relationships
• Managing significant technology change
• Responding to operational incidents
• Working with risk, compliance and technology functions
• Reporting operational risks to boards and senior management
• Building effective operational controls and governance

Technical knowledge is important, but leadership is equally important.

The SMF24 holder needs enough authority and credibility to make operational improvements happen across the organisation.

SMF24 and the Board

The Chief Operating Officer does not operate in isolation.

The SMF24 function sits alongside other senior management responsibilities, including functions such as the Chief Executive and Chief Risk Officer.

That makes clarity of responsibility particularly important.

The board needs to understand who owns which risks and how operational issues are escalated.

The SMF24 holder also needs to be able to communicate operational risks in language that the board can understand.

A highly technical explanation of a system failure is not necessarily useful to directors.

The board needs to understand the potential business impact, the regulatory implications, the mitigation and what management is doing about it.

The Personal Accountability of an SMF24 Holder

The Senior Managers and Certification Regime is built around clear individual accountability.

The FCA explains that the SMCR is intended to encourage senior managers to take responsibility for their areas of the business.

That makes the allocation of responsibilities important when appointing an SMF24.

The candidate should understand what they are personally responsible for.

The firm's governance documentation should also accurately reflect the responsibilities allocated to them.

An SMF24 appointment should therefore be treated as considerably more than changing someone's job title to Chief Operating Officer.

It is a regulated senior management appointment with defined accountability.

Does Every COO Need to Be SMF24?

No single designation automatically applies to every Chief Operating Officer.

The relevant Senior Management Functions depend on the firm's regulatory status, permissions, structure and the responsibilities allocated to the individual.

This is why firms should establish the appropriate SMF structure before beginning a senior recruitment process.

A job description and a regulatory responsibility map need to work together.

If the business is unsure which designation applies, specialist advice can help clarify the structure before the search begins.

Recruiting an SMF24 Chief Operating Officer

Recruiting an SMF24 is different from recruiting an ordinary COO.

The candidate needs to satisfy the firm's operational requirements while also being suitable for the regulatory responsibilities attached to the function.

That means assessing more than career history.

A search should examine the candidate's experience of operational resilience, technology, third-party relationships, major change, governance and senior-level decision-making.

The candidate also needs to be able to operate effectively alongside the firm's other SMF holders.

For firms building or strengthening their senior management team, SMF24 should therefore be considered as part of the wider regulatory architecture rather than as an isolated operations appointment.

Understanding SMF24 Alongside Other Designations

SMF24 is one of a wider group of Senior Management Functions covering key executive and control responsibilities.

Understanding where each designation sits is essential when designing a regulated firm's senior leadership structure.

Our SMF Designations: A Complete Guide brings the major functions together in one place, including SMF1, SMF2, SMF4, SMF5, SMF16, SMF17, SMF18, SMF24 and SMF27.

You can read the complete guide here:

https://www.smfcapital.co.uk/smf-designations-a-complete-guide/

Final Thoughts

SMF24 has evolved into a strategically important senior management function.

The Chief Operating Officer is increasingly involved in questions around operational resilience, technology, outsourcing, business continuity and the ability of the firm to continue delivering important services during disruption.

For regulated firms, that means the appointment needs to be approached carefully.

The right candidate needs operational leadership experience, but also the judgement and credibility required to carry a regulated Senior Management Function.

If your firm is recruiting an SMF24 Chief Operating Officer, SMF Capital can help identify senior candidates whose operational experience and regulatory responsibilities align with the requirements of the role.

Visit the SMF24 guide to explore the function in more detail, and use our SMF Designations Complete Guide to understand how SMF24 fits into the wider Senior Managers and Certification Regime.

SMF Capital — specialist recruitment for Senior Management Functions in regulated businesses.