SMF9: The Chair's Job Under SMCR

Today we're looking at SMF9 — the Chair function and what being the chair of a regulated financial services business actually involves under the Senior Managers and Certification Regime, or SMCR. For many businesses, appointing a chair can initially appear straightforward. Find an experienced board director, give them the chair's position and let them lead the board. But within a regulated financial services firm, the role can involve much more. The chair sits at the centre of the firm's gove...

Today we're looking at SMF9 — the Chair function and what being the chair of a regulated financial services business actually involves under the Senior Managers and Certification Regime, or SMCR.

For many businesses, appointing a chair can initially appear straightforward.

Find an experienced board director, give them the chair's position and let them lead the board.

But within a regulated financial services firm, the role can involve much more.

The chair sits at the centre of the firm's governance structure and needs to ensure that the board is able to perform its oversight role effectively.

What Is SMF9?

SMF9 is the Chair function.

It forms part of the Senior Management Functions framework, although whether SMF9 applies depends on the firm's regulatory status and circumstances.

Where it applies, the chair isn't simply the person who runs board meetings.

The role carries specific responsibilities within the regulated firm's governance arrangements.

That means the appointment needs to be considered carefully alongside the CEO, CFO, risk, compliance and other relevant senior management functions.

The objective is to create a board where responsibilities are clear and effective challenge is possible.

What Does an SMF9 Chair Actually Do?

That can involve:

• Setting the agenda for board meetings
• Ensuring sufficient time is given to important issues
• Encouraging effective challenge
• Making sure directors receive appropriate information
• Supporting effective board decision-making
• Ensuring governance processes operate properly
• Helping the board maintain oversight of senior management

The precise responsibilities will depend on the firm's structure and regulatory requirements.

The Chair Is Not the CEO

One of the most important distinctions is between the chair and the Chief Executive.

The CEO is responsible for managing the business.

The chair leads the board.

Those are different responsibilities.

A strong chair should therefore avoid simply becoming another executive running the company.

Instead, the chair needs to ensure that the board is effectively overseeing management.

That includes challenging the CEO and other senior executives where appropriate.

For a regulated business, maintaining that distinction can be particularly important.

A board shouldn't simply approve everything put in front of it by management.

Directors should be able to ask difficult questions.

Why is the business taking this risk?

What evidence supports this decision?

What happens if the assumptions prove incorrect?

Are the controls adequate?

Does the proposed strategy remain appropriate as circumstances change?

The chair has an important role in ensuring that those questions can be asked and properly considered.

That doesn't mean the chair should dominate the discussion.

The objective is to create a board environment in which directors can contribute constructively and independently.

The Chair and the CEO

The relationship between the chair and CEO is therefore particularly important.

They need to work together effectively, but they also have different roles.

The CEO needs to be able to manage the business.

The chair needs to provide leadership to the board and ensure appropriate oversight.

A good chair should be able to support the CEO while also challenging them when necessary.

That balance can become particularly important during periods of rapid growth, financial pressure, regulatory change or strategic transformation.

SMF9 and FCA Authorisation

For businesses seeking FCA authorisation, governance is an important part of the overall application.

The regulator needs to understand how the proposed business will be governed.

Who will sit on the board?

Who will chair it?

Who will manage the business?

How will the board oversee senior management?

How will directors receive information?

How will challenge and accountability operate?

Where an SMF9 is applicable, the proposed chair therefore needs to be considered as part of the wider governance structure rather than as an appointment made at the last minute.

What Makes an Effective SMF9 Candidate?

A strong SMF9 candidate will normally need substantial board-level experience.

But experience alone isn't enough.

The individual needs to understand the responsibilities of a chair and be capable of operating independently from executive management.

Relevant considerations can include:

• Previous board and chair experience
• Experience in regulated financial services
• Understanding of corporate governance
• Ability to challenge senior management
• Strong communication skills
• Ability to manage difficult board discussions
• Understanding of risk and regulatory responsibilities
• Ability to maintain appropriate independence

The precise requirements will depend on the firm.

A chair for a small fintech may have a different background from a chair of a large established financial institution.

The Chair and the Board

The chair also needs to think about the board as a whole.

Does it contain the appropriate range of experience?

Are directors asking sufficiently challenging questions?

Does the board understand the firm's principal risks?

Are important regulatory matters being given sufficient attention?

Does the board have enough information to make informed decisions?

These are all questions that can fall within the broader responsibilities of effective board leadership.

The Chair and Risk

The relationship between the chair and the firm's risk function is also important.

The board needs to understand the firm's principal risks and how management is addressing them.

The chair should ensure that risk isn't treated as a technical issue that is simply delegated to the Chief Risk Officer.

Instead, the board as a whole needs to understand the significant risks facing the business.

This is particularly important where the firm is growing rapidly or entering new markets.

Statements of Responsibilities

As with other Senior Management Functions, responsibilities need to be clearly defined.

The Statement of Responsibilities should reflect what the SMF9 holder is actually responsible for.

For the chair, this can include responsibilities associated with effective board leadership, governance and oversight.

The document should fit within the firm's wider governance framework rather than existing as a standalone regulatory document.

Does Every Firm Need an SMF9?

Not necessarily.

The Senior Management Functions that apply depend on the firm's regulatory status, activities and circumstances.

Businesses shouldn't simply copy the governance structure of another firm.

A large financial institution may require a substantially different board structure from a smaller regulated fintech.

The appropriate structure should reflect the firm's own circumstances and regulatory requirements.

For an overview of the different Senior Management Functions, see our SMF Designations: A Complete Guide.

Recruiting an SMF9 Chair

Recruiting a chair is therefore different from recruiting a conventional non-executive director.

The individual needs to be capable of leading the board while maintaining appropriate independence from executive management.

The recruitment process should consider:

• Board leadership experience
• Relevant regulatory experience
• Governance knowledge
• Independence
• Ability to challenge constructively
• Understanding of risk
• Experience working with senior executives
• Ability to lead difficult discussions

The right profile will depend on the firm's size, complexity and regulatory environment.

Where to Find Out More

If you're considering an SMF9 appointment, we've produced a dedicated guide:

SMF9: The Chair's Job Under SMCR

The guide looks in more detail at what the FCA's Chair function involves and the responsibilities associated with the role.

For the wider picture, see our SMF Designations: A Complete Guide.

Closing

So, what makes an effective SMF9 chair?

It isn't simply the ability to run a board meeting.

The chair needs to provide effective board leadership, encourage constructive challenge, oversee governance and ensure that the board can properly hold senior management to account.

For a regulated business, the chair can therefore be a central part of the governance framework.

If you're researching SMF9, read SMF9: The Chair's Job Under SMCR.

And for the wider framework, see our complete guide to SMF designations.

You can also visit SMF Capital to find out more about senior management recruitment and support for regulated businesses.

That's all for this episode of the SMF Capital Podcast.

Thanks for listening.