Executive Director Appointments at FCA-Regulated Firms: The SMF3 Brief

Executive Director Appointments at FCA-Regulated Firms: The SMF3 Brief

The Executive Director designation under the Senior Managers and Certification Regime is one of the more frequently misunderstood Senior Manager Functions in the UK regulated firm landscape. SMF3 sits alongside SMF1 (CEO) and SMF24 (Chief Operations) as a core designated executive function, but the criteria for applying it, the scope of the role, and the candidate profile typically differ from what boards initially assume. This article sets out what the SMF3 designation actually means, when it applies, and what makes the SMF3 brief different from a generic executive director search.

What SMF3 Actually Covers

The SMF3 Executive Director designation applies to an individual who is a director of the firm but who is not the CEO. The designation is required when a firm has executive directors beyond the SMF1 CEO who carry significant managerial responsibility for the firm’s activities. In practice, the SMF3 typically applies to senior executives who sit on the board and hold operational accountability for a meaningful part of the firm’s activities — for example a Deputy CEO, a Head of UK at the UK subsidiary of an international firm, or a senior commercial director with board representation.

The Statement of Responsibility for an SMF3 holder allocates regulatory accountability for the activities within their scope. Unlike the SMF1 CEO, where the Statement of Responsibility typically covers the firm’s activities in totality, the SMF3 Statement of Responsibility is usually narrower — covering specific business lines, functions or geographic areas that the individual is responsible for managing.

Three things follow from SMF3 designation. The candidate must pass FCA fitness and propriety assessment. The candidate must accept personal regulatory accountability for the activities within their Statement of Responsibility. And the candidate must have either prior SMF experience or sufficient relevant senior experience that the FCA is likely to grant approval through the Form A process.

When SMF3 Applies and When It Doesn’t

SMF3 is required for executive directors of designated FCA-regulated firms who have board representation and meaningful managerial responsibility. The designation does not apply to every senior executive — only to those who meet both the board director criterion and the managerial responsibility criterion. Three boundary cases come up frequently.

The first is the senior executive who is not on the board. A senior executive who runs a major business line but who is not a board director does not require SMF3. They may require a different SMF designation — most commonly SMF24 for Chief Operations or one of the other function-specific SMFs depending on their scope — but SMF3 is reserved for board-level executives.

The second is the non-executive director. Non-executive directors fall under SMF9 (Chair), SMF14 (Senior Independent Director), or the specific committee chair designations (SMF10–SMF13) rather than SMF3. SMF3 is an executive function — the individual is involved in the day-to-day running of the firm rather than providing independent oversight.

The third is the executive director with limited managerial scope. A board director who attends board meetings but does not have specific managerial responsibility for any part of the firm’s activities does not typically require SMF3 designation. The managerial responsibility criterion is what triggers the requirement.

Common SMF3 Role Profiles

Four role profiles recur in SMF3 appointments at FCA-regulated firms.

Deputy CEO or Chief Operating Officer with board representation. A senior executive who acts as the principal deputy to the CEO and who sits on the board typically requires SMF3 if they are not designated as SMF24. The Statement of Responsibility usually covers the operational scope of their role — typically operations, technology, change management, and some combination of commercial functions.

Head of UK or Country Head at international firms. The UK subsidiary of an international firm often appoints the most senior UK-resident executive as an SMF3 director, with the Statement of Responsibility covering the UK firm’s activities. This pattern is common at international banks, asset managers and insurance groups operating UK subsidiaries.

Senior commercial director with board representation. A Chief Commercial Officer, Chief Revenue Officer or Head of Distribution who sits on the board and carries significant managerial responsibility for the firm’s commercial activities often requires SMF3. The Statement of Responsibility usually covers the commercial business lines within their scope.

Founder-shareholder with executive board role. At founder-led firms and at some PE-backed regulated firms, founders and major shareholders who continue to hold executive board positions typically require SMF3 designation. The Statement of Responsibility scope depends on the executive functions they retain.

The SMF3 Brief: What Makes It Different

The SMF3 brief differs from a generic senior commercial director or COO search in three important ways.

First, the regulatory dimension shapes the candidate pool. Candidates need to be capable of passing fitness and propriety assessment, and prior SMF experience is typically valued highly. Boards that approach the SMF3 search as a generic senior executive search often shortlist candidates whose regulatory profile creates friction at the approval stage.

Second, the Statement of Responsibility scope matters more than the job title. The job title — Deputy CEO, COO, Head of UK, Chief Commercial Officer — describes what the firm calls the role. The Statement of Responsibility describes what the regulator considers the individual accountable for. The brief needs to articulate the Statement of Responsibility scope clearly, and candidates need to understand it before they can evaluate the role properly.

Third, the relationship with the SMF1 CEO matters. The SMF3 executive director works closely with the CEO, with the working relationship often determining whether the appointment succeeds. The brief should describe the CEO’s working style, the existing executive team dynamics, and the type of partnership the firm is looking to build. The chemistry dimension is often more important than the assessment of specific skills.

Brief Construction: Five Specifics That Often Get Missed

The Statement of Responsibility scope. The brief should set out clearly what activities the SMF3 holder will be accountable for. This is not boilerplate — different firms allocate different combinations of activities to different SMF holders. The brief should be specific about the activities the new SMF3 will own.

The reporting line and the working relationship with the CEO. The SMF3 holder typically reports to the SMF1 CEO. The brief should describe the CEO’s working style, the existing senior team dynamics, and the working relationship the firm is looking to build. Candidates evaluate this carefully.

The relationship with other SMF holders. SMF3 executive directors typically work alongside other SMF holders — SMF2 CFO, SMF4 CRO, SMF24 COO, SMF16 Head of Compliance and SMF17 MLRO depending on the firm’s designation. The brief should describe how the SMF3 role interacts with these other SMF functions and where the boundaries sit.

Regulator engagement expectations. The SMF3 holder typically engages with the regulator on matters within their Statement of Responsibility scope. The brief should describe the typical frequency and depth of regulator engagement, the firm’s current regulator relationship, and the candidate’s expected role in that engagement.

The expected progression path. Many SMF3 appointments are made with an implicit or explicit succession dimension — the SMF3 holder may be a successor to the SMF1 CEO over time, or they may be appointed specifically as a deputy without succession intent. The brief should be honest about the progression expectations, as this materially affects the candidate pool.

The Candidate Pool: Two Patterns That Work

Two candidate profiles dominate successful SMF3 appointments.

The first is the senior executive with prior SMF experience at a similar firm. Candidates who have previously held SMF1, SMF3 or SMF24 designations at an FCA-regulated firm in a similar sector pass through the approval process more quickly and bring directly relevant experience to the role. The candidate pool for this profile is finite and the most desirable candidates are typically being approached by multiple firms.

The second is the senior executive from a non-regulated commercial role with relevant commercial scale who is moving into the regulated sector. This pool is broader but requires careful assessment of the candidate’s likelihood of passing fitness and propriety, their willingness to accept personal regulatory accountability, and their capacity to learn the regulated FS context quickly. The strongest candidates in this pool have specific examples of how they have approached regulator engagement in adjacent contexts.

Timeline and Approval Realities

The Form A approval timeline for SMF3 appointments is typically three to six months from submission. The timeline is comparable to SMF1 CEO appointments, though the regulatory scrutiny is sometimes less intense for SMF3 roles given the narrower Statement of Responsibility scope.

Search timelines for SMF3 appointments are typically 10 to 14 weeks from brief to offer. Total timeline from search commencement to the new SMF3 director being in role is typically six to nine months once Form A is factored in.

Boards should plan for the timeline implications during the search rather than treating Form A as an administrative back-end step. Interim cover during the approval window may be needed depending on the role and the firm’s situation.

Common Pitfalls Boards Should Avoid

Three patterns recur in SMF3 searches that go wrong.

The first is treating SMF3 as a generic senior executive search. The regulatory dimension shapes the candidate pool, the brief construction, and the approval timeline. Searches that approach SMF3 as a generic senior commercial director search often produce shortlists that struggle through the approval process.

The second is over-weighting commercial scale relative to regulated FS familiarity. The regulatory learning curve for a candidate new to FCA-regulated FS is steep. Boards that prioritise commercial track record over regulated familiarity sometimes end up with candidates who struggle in the first 12 months in role.

The third is under-investing in the CEO-SMF3 working relationship assessment. The working relationship between the SMF1 CEO and the SMF3 executive director sits at the centre of the role. Searches that focus on capability and skip the chemistry dimension regularly produce appointments that struggle on integration.