What the Senior Managers Regime Means When Recruiting at Board Level

What the Senior Managers Regime Means When Recruiting at Board Level

Board appointments at FCA-regulated firms operate inside a regulatory framework that fundamentally changes the shape of the search. The Senior Managers and Certification Regime — SMCR — is not just a compliance overlay applied to the candidate’s CV. It changes who can hold the role, how the appointment is approved, what the person is personally accountable for once in post, and what the cost of a wrong appointment looks like for the firm.

Most boards at regulated firms have absorbed this framework into how they think about hiring. But the practical implications still surprise: timelines stretch unexpectedly, candidates withdraw mid-process for reasons that would not arise in non-regulated firms, and offers get retracted after FCA scrutiny that no one anticipated. The boards that hire well under SMCR are the ones that build the regulatory dimension into the search from day one — not the ones that bolt it on after the candidate has been identified.

This article sets out what SMCR actually means for board-level recruitment, the specific SMFs that affect board hiring decisions, and how the regime should shape the way boards run senior searches.

What the Senior Managers Regime means in practice for board hiring

The Senior Managers and Certification Regime came into full force across the financial services industry between 2016 and 2019, replacing the Approved Persons Regime. The core innovation was personal accountability: senior managers at FCA-regulated firms must now be individually approved by the regulator for specific Senior Manager Functions (SMFs), with each appointment supported by a Statement of Responsibility describing what the person is personally accountable for.

For board-level recruitment, this changes three things in practice.

First, the FCA becomes a third party to every senior appointment. The board may have agreed on the candidate, the candidate may have accepted the offer, and the legal contract may have been signed — but the appointment cannot commence until the FCA grants approval. That approval can take three months or longer, and the FCA may refuse, ask additional questions, or impose conditions. No senior appointment at a regulated firm is final until the regulator says so.

Second, the brief itself is constrained by the regulatory expectations of the role. SMF9 (Chair) at a challenger bank carries different competence expectations than SMF9 at a wealth management firm. SMF10 (Chair of Risk Committee) requires risk framework literacy that the board may need to evidence to the regulator. The role specification cannot be designed purely around what the board wants — it must also reflect what the FCA will accept.

Third, candidates evaluate the appointment differently than they would in a non-regulated firm. Senior candidates increasingly weigh the personal accountability risk of an SMF appointment, particularly in the wake of FCA enforcement against individual senior managers for conduct rule breaches. The candidate is not just asking whether the role fits their career — they are asking whether the firm’s governance and culture make the personal accountability tolerable. Boards that fail to recognise this lose strong candidates mid-process.

The specific SMFs that affect board-level recruitment

Most board appointments at FCA-regulated firms attach to one of the following SMF designations.

SMF1 (Chief Executive) — the most consequential SMF appointment at any regulated firm. The CEO holds overall responsibility for the firm’s compliance with regulatory requirements and is the senior manager most directly accountable to the FCA for the firm’s conduct. CEO recruitment at regulated firms is a different exercise from CEO recruitment elsewhere.

SMF3 (Executive Director) — the broadest SMF designation, attaching to any executive director with significant management authority not covered by another SMF. Deputy CEO, COO at firms where SMF24 is not used, executive directors with line responsibility for major business functions.

SMF9 (Chair) — Chair of the firm itself, where the firm has one. SMF9 carries significant FCA scrutiny because the Chair’s role in overseeing senior management approvals, board effectiveness and culture is regulated explicitly. First-time SMF9 candidates face higher hurdles.

SMF10–13 — Chairs of the Risk, Audit, Remuneration and Nominations Committees. Each requires specific competence relevant to the committee. SMF10 (Risk) is the most technically demanding, requiring risk framework, ICAAP/ILAA and capital adequacy literacy at banks. SMF11 (Audit) requires the financial expertise familiar from non-regulated board appointments, sharpened by regulated audit committee duties.

SMF14 (Senior Independent Director) — the SID role formalised under SMCR. SMF14 acts as Chair backup, investor liaison and governance ombudsman, with specific FCA expectations of independence.

SMF4 (Chief Risk Officer) and SMF5 (Head of Internal Audit) — both board-attended or board-reporting roles depending on firm structure. SMF4 covers the senior risk function (separate from operational risk leadership). SMF5 covers the head of internal audit function with reporting line to the Audit Committee Chair.

SMF24 (Chief Operations Function) — the senior operations function leader. Common at larger firms; less common at smaller firms where the COO sits under SMF3 instead. SMF24 carries operational resilience accountability, which has become a focus area for the FCA following the 2022 operational resilience rules.

Two SMF roles fall outside our remit and are handled by our sister practice, FD Capital: SMF2 (Chief Finance Function), which is the CFO designation at all regulated firms, and SMF17 (Money Laundering Reporting Officer). SMF16 (Compliance Oversight) is also operator-territory and routed to FD Capital. These three SMFs operate the regulatory machinery of the firm rather than supplying its board-level strategic direction, and FD Capital’s specialism is built around that operator and compliance angle.

The Chair’s role in senior approvals

The Chair of a regulated firm carries explicit responsibility under SMCR for board-level oversight of senior appointments. SMF13 (Chair of Nominations Committee) is often combined with SMF9, particularly at smaller firms — meaning the same person owns both the firm-level board oversight and the senior appointments process.

This concentration of responsibility means the Chair is rarely just one input into board hiring decisions — they are the regulatory accountability holder for those decisions. Two practical implications follow.

First, the Chair must be directly engaged in every senior appointment, including detailed engagement with the candidate brief, the shortlist, candidate references and the appointment recommendation to the FCA. A Chair who delegates this work to HR, to executive management, or to the recruitment agency is at risk of being held accountable for an appointment they did not properly own.

Second, the Chair’s own appointment carries the heaviest FCA scrutiny of any board appointment at the firm. SMF9 candidates face thorough fitness and propriety assessment, regulatory reference checks, and often s60 interview at the FCA. First-time Chairs face an even higher bar because the regulator has no prior approval track record to rely on. Boards recruiting a Chair should expect the longest approval timeline of any senior appointment they will run, and plan accordingly.

How SMCR shapes candidate selection

The Senior Managers Regime changes what a “good” candidate looks like in a way that boards often underestimate. Three filters are now active that did not apply at non-regulated firms.

The fitness and propriety filter. Beyond competence and culture fit, every SMF candidate must meet the FCA’s fitness and propriety standards: honesty, integrity and reputation; competence and capability; and financial soundness. The regulatory reference rules — requiring previous regulated employers to disclose conduct issues for up to six years — give the FCA a longitudinal view of candidate conduct that did not exist under the previous regime. Candidates with conduct issues at previous regulated employers, even ones that did not result in formal sanction, can fail this filter unexpectedly.

The competence filter. The FCA expects SMF candidates to be competent for the specific role at the specific firm. A candidate who has been Chair of Audit Committee at an asset manager may not be readily accepted as Chair of Audit Committee at a challenger bank — the regulatory environment, technical accounting issues and prudential context are different enough that competence does not transfer automatically. Boards that assume sector-agnostic credentials suffice can find their preferred candidate refused at approval.

The accountability filter. SMF candidates are now thinking about the role from the perspective of personal accountability, not just career progression. The right candidate has not just decided the role fits their career — they have decided the firm’s governance, culture, risk management and conduct framework are good enough that they are comfortable taking personal accountability. Candidates withdraw from processes for reasons that would not have applied under the previous regime: concerns about the firm’s risk culture, worries about overlapping responsibilities with other SMFs, dissatisfaction with the support structures around the role.

The boundary between board hiring and compliance hiring

A common confusion at regulated firms is the boundary between hiring at board level and hiring into the compliance function. They are related and they intersect — but they are different searches, with different candidate pools, different specialist requirements and different approval considerations.

Board hiring is concerned with the strategic direction of the firm, governance oversight, board effectiveness and the senior management decisions that shape how the firm operates. The candidates are board-experienced executives and non-executive directors. The relevant SMFs are SMF1, SMF3, SMF4, SMF5, SMF9, SMF10–14 and SMF24.

Compliance hiring is concerned with the regulatory operating function of the firm — designing and running the compliance programme, advising the business on regulatory requirements, engaging with the regulator on regulatory matters, and acting as the firm’s regulatory subject matter expertise. The candidates are compliance professionals with specific regulatory specialism. The relevant SMFs are SMF16 (Compliance Oversight) and SMF17 (MLRO).

The CFO sits between these two domains — accountable as SMF2 for the firm’s financial controls and reporting, but operating at board level with significant strategic responsibility. Exec Capital routes SMF2 mandates to our sister practice FD Capital because senior finance leadership at regulated firms requires both the SMF approval lens and the deep finance specialism that FD Capital is built around. SMF16 and SMF17 mandates also route to FD Capital, where compliance recruitment is the firm’s specialist domain.

This boundary matters for two reasons. First, the wrong agency for the wrong search produces predictable failure — boards that ask compliance recruitment agencies to find Chairs, or executive search firms to find MLROs, end up with shortlists missing the specific specialism required. Second, the boundary makes it clear what specialism the firm should expect from any agency engaged on a board-level brief — namely, board recruitment expertise informed by regulatory awareness, not compliance recruitment dressed up as board recruitment.

How Exec Capital approaches SMCR board mandates

Exec Capital recruits exclusively at board and senior leadership level for FCA-regulated firms, and every mandate is led personally by Adrian Lawrence FCA, an ICAEW Fellow whose own regulated professional background gives Exec Capital a meaningful frame of reference for the accountability that SMF roles carry.

Our approach to SMCR board recruitment differs from generalist executive search in three ways.

We build the SMF designation, the Statement of Responsibility considerations and the FCA approval timeline into the search planning before the brief is signed off. The conversation about which SMF the appointment will attach to, whether the role specification is approvable, and how the timeline interacts with other senior approvals in flight at the firm happens at the start, not after the candidate has been identified.

We filter candidates against the fitness and propriety standards before they reach the shortlist. Regulatory references are checked, conduct history is established, and the candidate’s specific SMF approval history is verified before the candidate is presented to the firm.

We engage with the Chair as the regulatory accountability holder for the senior appointment, not just as one input into the hiring decision. The Chair’s view on the candidate brief, the shortlist and the appointment recommendation is built into the search process from day one — because that is where the FCA will be looking for board ownership of the decision.

For senior board recruitment mandates at FCA-regulated firms, speak to Adrian directly on 0203 834 9616 or through our FCA-regulated firms page.

Adrian Lawrence

Adrian Lawrence FCA is the founder of Exec Capital. He is a Chartered Accountant and holds an ICAEW practising certificate in his own name with over 25 years’ experience operating at C-suite level, Adrian brings direct executive experience to senior search. His background spans private equity-backed businesses, owner-managed companies, and listed environments, giving Exec Capital a practitioner’s understanding of what leadership hires actually require.