Hiring a CEO Without Previous SMF Approval

First-Time SMF1: Hiring a CEO Who Has Never Held an SMF Role Before

The assumption that a CEO appointment at an FCA-regulated firm requires a candidate who has previously held an SMF designation is understandable but wrong. The FCA does not require candidates for senior management functions to have prior SMF experience — it requires them to be fit and proper for the specific role. A candidate who has led a significant business in an unregulated sector, who understands the regulatory obligations of the SMF1 designation, and who can demonstrate the personal qualities and governance capability the FCA expects, is a credible candidate for a regulated firm CEO appointment regardless of whether they have previously been FCA approved.

That said, a first-time SMF1 appointment is a materially more complex process than an appointment where the candidate has an established regulatory track record. The FCA’s assessment of a first-time applicant is more intensive, the Form A preparation requires more care, and the board has a greater advisory responsibility toward the candidate to ensure they understand what they are taking on. This guide addresses each of these dimensions.

Why First-Time SMF1 Candidates Arise

There are several legitimate scenarios in which the best candidate for a regulated firm CEO position has no prior SMF approval history. The most common is the transition from an unregulated sector — a successful CEO from a technology, professional services or industrial background who is moving into a regulated financial services firm for the first time. This profile is increasingly common as regulated firms recognise that deep financial services experience is not always the most important criterion, particularly for CEO appointments at fintech businesses, payment institutions or financial services businesses at early stages of their regulatory journey.

A second scenario is promotion from within, where the best internal candidate is a capable executive who has operated below the SMF threshold — in a senior management role that fell within the certification regime rather than the senior managers regime. Their competence is known, their cultural fit is established, but their regulatory approval history is limited to the firm’s own certification process rather than FCA pre-approval. Promoting this individual to CEO requires a first-time SMF1 application.

A third scenario is the return to executive roles from an extended period outside the regulated sector — a former regulated firm executive who has spent several years in private equity, academia, or non-executive roles and whose most recent SMF approval is more than six years old. The regulatory references required for a Form A application cover only the last six years, which means an individual whose regulated firm executive experience is older than this is, in regulatory reference terms, making a first-time application.

What the FCA Assesses in a First-Time SMF1 Application

The FCA’s fit and proper assessment covers the same three areas for a first-time applicant as for an experienced SMF holder: honesty, integrity and reputation; competence and capability; and financial soundness. The difference is not in the framework but in the evidence base available to the FCA when making its assessment.

For an experienced SMF holder, the FCA has a regulatory track record to draw on — previous approval history, supervisory interactions at previous firms, any regulatory references that have been submitted. For a first-time applicant, none of this history exists within the regulatory framework. The FCA must assess the individual’s fitness and propriety based on their professional background, character references, the firm’s own assessment of their suitability, and the quality and completeness of the Form A submission itself.

This typically results in a more detailed FCA assessment for first-time applicants. The probability of a regulatory interview — in which the FCA meets the proposed SMF holder directly to assess their understanding of the role and the regulatory obligations it carries — is higher for first-time applicants than for candidates with an established FCA approval history. The regulatory interview for a first-time SMF1 applicant will typically explore the candidate’s understanding of the SMCR framework, their approach to the firm’s regulatory relationship, their understanding of the specific risks and regulatory obligations of the firm’s business, and their plans for the first six to twelve months in the role.

Preparing a First-Time SMF1 Candidate for the FCA Interview

The regulatory interview is one of the most consequential steps in the approval process for a first-time SMF1 applicant. A candidate who performs poorly — who is unable to articulate the regulatory framework that applies to the firm, who is unprepared for the level of technical engagement the FCA expects, or who appears to have an incomplete understanding of the personal accountability the SMF1 designation carries — risks both the rejection of the specific application and a poor start to their relationship with the regulator.

Preparation for the regulatory interview should begin well before the Form A is submitted. The candidate should have read and understood the FCA Handbook provisions on the Senior Managers Regime, the firm’s most recent supervisory correspondence, and any regulatory concerns or remediation activity that the firm has been subject to. They should understand the specific SMFs that apply to the firm and the responsibilities that attach to each, so that they can speak coherently about the governance structure they are inheriting and their plans for managing it.

They should also be prepared to discuss the firm’s risk profile in specific terms — not at a high level of generality but with genuine knowledge of the principal risks the FCA supervises the firm against, what the firm’s current control framework addresses, and where the candidate believes further development is needed. A first-time SMF1 candidate who has done this preparation will make a materially better impression in a regulatory interview than one who has not, and the quality of that impression directly affects the FCA’s assessment of the individual’s fitness and propriety for the role.

The Form A Submission for a First-Time Applicant

The Form A submission for a first-time SMF1 applicant requires particular care in several respects. The material disclosure section must be completed with great precision — the requirement to disclose spent convictions in certain circumstances, civil proceedings, and any financial difficulties is broader than most candidates initially expect, and the consequences of a material omission are serious regardless of whether the omission was deliberate. The candidate’s legal advisers should review the disclosure requirements before the form is completed.

The regulatory references section presents specific challenges for first-time applicants. Where the candidate’s previous career has been entirely in unregulated sectors, there may be no regulated firm employer from whom a regulatory reference is required — simplifying this aspect of the process. Where the candidate has had any regulated firm employment in the last six years, those references must be obtained and their content must be reviewed and understood before the Form A is submitted. A first-time SMF1 candidate who is unaware of potential issues in their regulatory reference and who only encounters the content at the point of FCA review is in a far worse position than one who has anticipated and planned for the disclosure.

The Board’s Role in Supporting a First-Time SMF1 Appointment

Where the board has chosen a first-time SMF1 candidate, it has a specific advisory responsibility that it does not carry to the same extent when appointing an experienced SMF holder. The experienced SMF candidate understands what the designation involves from direct experience. The first-time candidate is relying partly on the firm and its advisers to ensure they understand the personal accountability they are accepting.

The board should ensure that the candidate has had a thorough briefing on the SMCR framework before the appointment is confirmed — not the Form A process specifically, but the substance of the SMF1 designation: what the Statement of Responsibilities will say about their personal accountability, how the FCA supervisory relationship works, what the Duty of Responsibility requires of them, and what the consequences of a regulatory breach in their area of accountability can be for them as an individual. A CEO who accepts an SMF1 appointment without genuinely understanding the personal accountability framework is not adequately informed, and the board that has not provided that information carries its own governance responsibility.

Timeline and Contingency Planning

First-time SMF1 appointments typically take longer to approve than applications from candidates with an established regulatory track record. Boards should plan for a minimum of ten weeks from Form A submission to approval for a first-time applicant, with a contingency allowance of up to twenty weeks if a regulatory interview is required and if the FCA requests additional information. Building this timeline into the succession plan — including identifying interim SMF1 coverage where the gap between the outgoing CEO’s departure and the new CEO’s approval is likely to exceed a few weeks — is essential.

Interim SMF1 coverage while a first-time appointment is being approved requires careful structuring. The individual providing interim coverage must themselves be capable of holding the SMF1 designation temporarily, must be notified to the FCA under the temporary appointment provisions of SUP 10A, and must be genuinely in a position to exercise the CEO’s regulatory responsibilities during the interim period rather than simply holding the designation on paper.

When First-Time SMF1 Is the Right Choice

The question of whether to appoint a first-time SMF1 candidate or to insist on a candidate with prior FCA approval depends on the specific circumstances of the firm and the appointment. At firms with a well-established regulatory relationship, a strong compliance function, and a stable governance structure, a first-time SMF1 appointment from a highly capable external candidate can be an excellent outcome — bringing fresh perspective and commercial capability that the regulated financial services sector does not always provide. The regulatory approval process is manageable with proper preparation, and the FCA’s assessment is of the individual’s fitness and propriety rather than their regulatory credentials per se.

At firms with active regulatory concerns, an ongoing skilled person review, or a recently imposed requirement, the FCA’s scrutiny of a first-time SMF1 applicant will be more intensive and the risk of a delayed or problematic approval process higher. In these circumstances the board should give serious weight to whether a candidate with an established and positive regulatory track record would serve both the firm and the incoming CEO better than a first-time applicant who faces a more challenging approval environment.

Working with Exec Capital

Exec Capital has placed first-time SMF1 CEOs at FCA-regulated firms and understands the specific preparation and process management the appointment requires. We brief first-time candidates on the regulatory framework early in the search process, advise on Form A preparation, and support the regulatory interview preparation as part of every assignment. Call Adrian Lawrence FCA on 0203 834 9616 to discuss your CEO search.

Induction and Ongoing Development After Approval

The FCA’s assessment of fitness and propriety is a point-in-time judgment — it confirms that the individual is fit and proper to take up the SMF1 designation at the point of approval. It does not guarantee that the individual will continue to be fit and proper as the role develops and as the regulatory environment evolves. For a first-time SMF1 holder, the period immediately after approval is one of the highest-risk phases — the individual is exercising a level of personal regulatory accountability that is new to them, in a supervisory environment they are encountering for the first time.

Boards should invest in a structured induction programme for a first-time SMF1 CEO that goes beyond the operational handover from the outgoing CEO. The regulatory dimension of the induction should cover: the firm’s supervisory relationship history with the FCA, including any concerns that have been raised and remediation that has been completed; the firm’s SMCR governance map and the Statement of Responsibilities for each SMF holder; the firm’s risk framework and how it is reported to the board and the FCA; and the specific regulatory obligations that the CEO’s Statement of Responsibilities places on the individual personally. A first-time SMF1 holder who completes this induction systematically is materially better prepared for their first supervisory interaction with the FCA than one who relies on the outgoing CEO’s verbal briefing.

Ongoing development — through regulatory updates, peer networks, and engagement with the firm’s compliance function — should also be structured for a first-time SMF1 CEO. The regulatory environment continues to evolve, and a CEO who was fully briefed on the FCA’s expectations at the point of approval but who has not kept pace with regulatory developments in the two years since will find the supervisory relationship more challenging than one who has actively tracked the changes. Exec Capital can refer first-time SMF1 CEOs to appropriate regulatory networks and development resources as part of our post-appointment support.

Long-Term View: Managing Regulatory Credibility Over a CEO Tenure

First-time SMF1 approval is the beginning of a regulatory relationship that will define the CEO’s tenure. The FCA forms its view of individual SMF holders over time — through supervisory meetings, through the quality of the firm’s regulatory submissions, and through the conduct of the firm’s regulated activities. A CEO who begins their tenure at a disadvantage because of the first-time approval process, but who invests in building the regulatory relationship and demonstrates genuine regulatory engagement over their first two years, can substantially improve the FCA’s assessment of their fitness and propriety relative to the initial approval. Conversely, a CEO whose regulatory engagement is weak or reactive — who is unprepared for supervisory meetings, who is not familiar with the firm’s regulatory position, or who defers all FCA contact to the compliance function — will find the supervisory relationship deteriorating over time regardless of how smoothly the initial approval went. The first-time SMF1 designation is not a permanent marker — it is the starting point for a regulatory relationship that the individual shapes through their own conduct over the course of their tenure.

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.