Hiring a Deputy CEO at an FCA-Regulated Firm

Hiring a Deputy CEO at a Regulated Firm: SMF3 vs SMF1 Succession Considerations

The Deputy CEO role at an FCA-regulated firm sits at one of the most complex governance intersections in the SMCR framework. It is a role defined more by its succession purpose than by its operational scope — a position created principally to provide CEO continuity, but which must be structured as a genuine governance role with real accountability if it is to satisfy the FCA’s expectations and serve the firm’s actual interests. Getting the structure wrong — creating a Deputy CEO that is more title than substance, or one that is positioned as a succession candidate without the regulatory credentials to assume the SMF1 — can create both governance and regulatory risk.

This guide sets out how regulated firms should approach the Deputy CEO role — what designation applies, what the FCA expects, how to structure genuine succession without pre-empting the board’s future decision, and what the search process looks like.

The Deputy CEO Under SMCR: Which SMF Applies?

SMCR does not have a designated “Deputy CEO” function. The Deputy CEO at a regulated firm will typically hold the SMF3 designation — Executive Director — which covers executive board members whose role does not correspond to one of the other specifically defined functions. In some cases, depending on the firm’s structure and the specific responsibilities of the Deputy CEO role, they may hold an additional SMF designation alongside SMF3 — for example, SMF24 (Chief Operations Function) if the Deputy CEO also carries operational oversight accountability, or SMF2 (Chief Finance Function) if they have functional responsibility for the finance operation.

The critical point is that the Deputy CEO does not automatically hold or inherit the SMF1 designation. If the CEO is absent, incapacitated or departs without notice, the Deputy CEO cannot simply step into the SMF1 role without the FCA’s approval — unless the firm has structured a temporary appointment under the provisions of SUP 10A.14, or unless the individual has been separately submitted for and received SMF1 approval. Boards that create a Deputy CEO on the assumption that the individual will “cover” the CEO role in the event of an emergency without thinking through the regulatory mechanics are creating a compliance gap rather than a succession solution.

Genuine vs Titular Deputy CEO Roles

The FCA’s assessment of any SMF holder’s fitness and propriety is based on whether the individual is genuinely performing the functions designated to them. A Deputy CEO who holds SMF3 but whose role is primarily titular — who is not genuinely operating as an executive board member, who does not attend board meetings in an active capacity, and whose “deputy” responsibilities do not involve real accountability for any aspect of the firm’s operations — is potentially holding an SMF designation that does not reflect reality. This creates a risk not only for the firm’s regulatory compliance but for the individual, whose Statement of Responsibilities would purport to describe accountability that they are not in practice exercising.

A well-structured Deputy CEO role at a regulated firm should have genuine operational accountability in its own right — a specific functional area, a defined scope of the firm’s activities, or a programme of strategic work for which the individual is personally responsible. This ensures that the individual is a genuine SMF3 holder with real accountability, rather than a nominal Deputy whose principal function is to be available as a succession backstop.

Structuring Genuine Succession Without Pre-Empting the Board

One of the governance tensions in creating a Deputy CEO role at a regulated firm is the succession signal it sends. Appointing a specific individual to the Deputy CEO role implies, at least in market perception, that this person is the designated CEO successor. For many boards, this implication is intentional — the Deputy is explicitly being developed and tested for the CEO role. But for others, the board wants to maintain flexibility in its future CEO succession decision without being seen to have pre-committed.

There are several ways to manage this tension. The first is to be explicit in the appointment communication about the nature of the role — framing the Deputy CEO as a senior operational executive role rather than as a succession title, and making clear that CEO succession will be decided by the board at the relevant time. This does not fool sophisticated observers, but it preserves the formal governance position that the board retains discretion over succession.

The second approach is to structure the Deputy CEO role with a genuine operational mandate that justifies the appointment on its own terms — transformation leadership, international expansion, a specific business line — so that the succession dimension is genuinely secondary to a real operational rationale. This is the stronger governance approach, because it means the Deputy CEO is not dependent on the succession expectation to justify their presence and their SMF3 designation.

The SMF1 Question: Should the Deputy Be Pre-Approved?

Whether to seek FCA approval for the Deputy CEO as an SMF1 holder simultaneously with their SMF3 appointment is a decision that boards at regulated firms should consider explicitly rather than leave unaddressed. There are arguments on both sides.

The case for pre-approval as SMF1 is that it eliminates the regulatory gap in the event of an unplanned CEO absence or departure. If the Deputy holds both SMF3 and SMF1 approval, they can assume the CEO function immediately without the delay of a temporary appointment process or a full Form A submission. For firms where the CEO is the dominant regulatory contact and where an unplanned CEO vacancy would create immediate supervisory concern — typically at smaller or higher-risk regulated firms — this may be the most prudent approach.

The case against is that holding dual SMF1 and SMF3 approval creates a governance appearance that pre-commits the succession in a way that limits the board’s future flexibility. It also raises questions about the independence of the SMF1 designation — if both the CEO and the Deputy hold SMF1, the FCA may seek to understand how accountability is allocated between the two individuals in circumstances where both are in post.

The right approach depends on the firm’s specific circumstances. Exec Capital advises on this structural question as part of every Deputy CEO search at a regulated firm, and we recommend that the firm’s legal and compliance advisers are involved in the decision before the appointment is finalised.

The Candidate Profile for a Regulated Firm Deputy CEO

The Deputy CEO candidate at an FCA-regulated firm needs to be credible in two distinct ways. First, they need to be credible as a senior executive in their own right — with the operational experience, leadership capability and commercial judgment to contribute genuinely to the firm’s management rather than simply to occupy a succession position. Second, they need to be credible as a potential future CEO of a regulated firm — with the regulatory track record, the FCA engagement capability, and the personal accountability framework understanding that the SMF1 designation would eventually require.

Where the firm is creating the Deputy CEO role specifically to develop an internal succession candidate, the profile question is partly answered — the candidate is known, their capabilities are understood, and the FCA approval for SMF3 is the key immediate hurdle. The focus of the search in this case is more about structuring the role and the development programme than about identifying the candidate.

Where the firm is recruiting an external Deputy CEO, the search is genuinely bidirectional — finding a candidate who is strong enough to contribute operationally in the short term and plausible enough as a CEO succession candidate to justify the senior designation. This combination narrows the candidate pool considerably, and boards should be realistic about how long the search may take and how much flexibility they are willing to accept on either dimension of the profile requirement.

The Form A Process for SMF3

The Deputy CEO’s SMF3 designation requires FCA approval via Form A in the same way as any other SMF appointment. The approval timeline — typically six to ten weeks for a straightforward application — applies in full, and the candidate cannot exercise their SMF3 responsibilities until approval is granted. Boards should build this timeline into the appointment plan alongside the broader search and negotiation process, recognising that in practice the total elapsed time from identifying a preferred candidate to that individual being in post and approved is likely to be three to four months minimum.

The regulatory reference requirements for an SMF3 appointment apply in the same way as for any senior management function. Where the preferred candidate has held regulated firm roles in the last six years, references must be collected from all relevant previous employers before the Form A is submitted. This is one of the most frequently underestimated elements of the regulated firm appointment process, and leaving it until after the offer has been made creates both timeline risk and the potential for late-stage surprises.

Working with Exec Capital

Exec Capital places Deputy CEOs and senior executive board members at FCA-regulated firms. We advise on the governance structure of the role, the SMF designation that applies, and the regulatory approval process, as well as conducting the search itself. Every regulated firm mandate is led personally by Adrian Lawrence FCA. Call us on 0203 834 9616.< We advise on whether the Deputy CEO role is the right succession solution for a given firm's circumstances, develop the brief in consultation with the board and any investor stakeholders, and conduct the search for candidates who are credible both as immediate operational contributors and as longer-term CEO succession candidates. Our regulated firm governance experience means we can support the discussion of the SMF designation, the Statement of Responsibilities scope and the pre-approval question as an integrated part of the search, rather than as a separate compliance exercise./p>

The Deputy CEO’s Statement of Responsibilities

The Statement of Responsibilities for a Deputy CEO who holds SMF3 must accurately describe the specific areas for which the individual is personally accountable. This is more complex than it appears, because the Deputy CEO role frequently involves a combination of genuine operational accountability in specific areas alongside a broader “deputy” mandate that does not correspond neatly to any defined functional area.

The FCA expects the Statement of Responsibilities to be specific rather than generic. A statement that describes the Deputy CEO as “responsible for supporting the CEO and deputising in their absence” does not meet the standard — it describes a relationship with another SMF rather than a specific area of accountability. The SoR should identify the specific aspects of the firm’s activities for which the Deputy CEO is personally responsible, the specific committees or governance bodies that the individual chairs or attends in a decision-making capacity, and the specific regulatory obligations that fall within their personal scope.

Where the Deputy CEO is intended to provide CEO succession, the SoR should also be drafted in a way that gives the individual genuine board-level exposure to the areas they would need to oversee as CEO — not simply the areas they currently manage in their Deputy role. A Deputy CEO who is being developed for CEO succession but whose SoR confines them to a single functional area will not have the breadth of board exposure that the SMF1 designation requires, and the succession may be delayed or complicated when the FCA’s assessment reveals this gap.

When the Deputy CEO Route Is Not the Right Solution

Creating a Deputy CEO role is not always the right answer to a CEO succession challenge at a regulated firm. There are circumstances in which the cost, the governance complexity, and the market signal of a Deputy CEO appointment outweigh its benefits. Where the board has a strong internal succession candidate who simply needs time and development before they are ready for the CEO role, the right solution may be a structured development programme for the existing individual rather than the creation of a new senior position. Where the succession timeline is long enough to allow a proper external search when the CEO eventually departs, maintaining search readiness is often more appropriate than installing a succession candidate years before they will be needed.

The risk of creating a Deputy CEO without a clear rationale is that the individual occupies a position that is neither fully empowered nor clearly transitional — a liminal governance role that creates tension with both the CEO (who may feel their authority is being shared before they are ready to hand it over) and the board (which has pre-committed to a succession path it may later wish to revise). Exec Capital advises on whether a Deputy CEO appointment is the right solution for a given succession challenge before the search process begins, and we are candid when we believe an alternative approach would serve the firm better.

The Board’s Ongoing Responsibility for the Deputy CEO’s Development

Where the Deputy CEO is being developed as a CEO succession candidate, the board has an ongoing responsibility to ensure the development is genuine rather than nominal. A Deputy CEO who is formally identified as the succession candidate but who is not given the board exposure, the strategic involvement, and the regulatory engagement experience they will need as CEO is not actually being developed — they are being held in a succession holding pattern that may prove inadequate when the succession moment arrives. Boards should structure the Deputy CEO’s role to provide progressive exposure to the full scope of the CEO’s responsibilities — increasing their engagement with the FCA supervisory team, broadening their responsibility for strategic planning, and ensuring they are present at the board’s most significant governance discussions. Annual reviews of the Deputy CEO’s development — against a structured assessment of their readiness for the CEO role — should be a standing item in the board’s succession planning governance. Exec Capital can facilitate this assessment process as part of our regulated firm succession advisory work.