CEO Appointments at Challenger Banks: PRA Expectations and Dual-Regulation Reality

Appointing a chief executive at a UK challenger bank is not the same exercise as hiring a CEO for an FCA-only firm. A bank is dual-regulated: the Prudential Regulation Authority supervises its safety and soundness, and the Financial Conduct Authority supervises its conduct. The CEO holds the Chief Executive function, SMF1, under the Senior Managers and Certification Regime (SM&CR), and for a bank that approval is led by the PRA, which cannot approve the candidate without the FCA’s consent. Both regulators therefore have a view on the person the board wants to appoint, and the board needs a candidate who will satisfy both of them as well as the shareholders.

This guide covers how SMF1 approval works at a dual-regulated bank, how the 2026 SM&CR reforms have changed the process, what the PRA’s route for new banks means for the CEO hire, and how boards and investors can shape a search so the preferred candidate is approvable as well as appointable — the same approach we take in our CEO of a regulated firm recruitment work. It is written for challenger and neo bank chairs, nominations committees, founders and the investors who back them.

Who approves a challenger bank CEO

For an FCA solo-regulated firm, the FCA alone assesses and approves a senior manager. For a bank, building society or designated investment firm, the PRA is the lead authority for the senior management functions it specifies, and SMF1 is one of them. The PRA’s own guidance on Senior Managers Regime approvals is explicit that the FCA must give its consent before any final decision can be made on an application. In practice that means one application, submitted through the PRA’s Connect system, assessed by a PRA case officer, with the FCA reviewing the same file from a conduct perspective.

Either regulator, or both, may want to interview the candidate. The PRA says interviews are most likely for the most senior roles at the largest firms, and that where both regulators want to interview they aim to hold a single joint interview. A challenger bank CEO should not assume an interview will be waived because the firm is small: a first-time SMF1, a candidate moving across from a non-bank sector, or a firm with open supervisory concerns all make an interview more likely.

The approval sits on a three-month statutory determination period for a complete application. Two points catch boards out. First, the clock stops whenever the regulator asks for further information or arranges an interview, so a slow answer from the firm or the candidate adds directly to the timeline. Second, the PRA treats a firm that does not answer a case officer’s request in four weeks as a non-responder and may reject the application. The quality of the Form A, the supporting fitness and propriety evidence and the draft Statement of Responsibilities matters as much as the quality of the candidate.

What each regulator is looking for

The fitness and propriety test is shared — honesty, integrity and reputation; competence and capability; financial soundness — but the two regulators approach it from different angles.

• The PRA focuses on whether the candidate can run the bank safely: understanding of the capital and liquidity position, the internal capital and liquidity adequacy assessments (ICAAP and ILAAP), recovery planning and solvent wind-down thinking, the risk appetite framework, and the ability to hold a credible prudential conversation with supervisors without passing every question to the CFO.
• The FCA focuses on customer outcomes and conduct: the Consumer Duty, financial crime controls, treatment of vulnerable customers, complaints, financial promotions, and the culture the CEO will set across a fast-growing customer base.
• Both look at the fit between the candidate’s experience and the firm’s actual business model, stage and risk profile, and at how the CEO’s responsibilities sit alongside those of the rest of the senior management team.

A candidate with an outstanding commercial record but a thin prudential vocabulary is the classic risk at a challenger bank. They can be the right appointment, but only if the board has thought through how the gap will be closed — through the strength of the CFO and Chief Risk Officer, a clear development plan, and a candidate who has prepared seriously for the regulatory interview.

What changed in the 2026 SM&CR reforms

SM&CR is in the middle of its most significant overhaul since it was introduced for banks in 2016. Phase 1 is already in force; phase 2 is out for consultation. Both matter to a board planning a CEO change in the next 12 to 18 months.

Phase 1: in force from 24 April 2026

The PRA’s policy statement PS12/26 and the FCA’s companion PS26/6 were published on 22 April 2026, with most changes taking effect on 24 April 2026. The points most relevant to a CEO appointment at a bank are:

• The 12-week rule has been clarified. Where an SMF holder leaves unexpectedly, the firm must now submit a complete application for the replacement within 12 weeks, rather than having the approval decided within that window. The regulators then have their usual determination period.
• Temporary cover carries accountability. The Senior Manager Conduct Rules now apply to someone covering an SMF role under the 12-week rule, and breaches are reported on the updated Form L.
• Criminal record checks last longer. A check completed up to six months before submission is now accepted, up from three, which removes a common cause of re-work when a process stalls.
• Statements of Responsibilities and management responsibilities maps now need updating within six months of a significant change, and the PRA has committed to confirming when a case officer is allocated.

Phase 2: consultation open to 22 January 2027

On 22 October 2026 the PRA published CP14/26 and the FCA published CP26/37, both proposing deeper reform that depends on the Financial Services and Markets Bill passing and on HM Treasury commencing its provisions. The PRA expects implementation in the second half of 2027. The proposals include moving many SMFs from pre-approval to a notification model, removing the Certification Regime, extending the temporary cover period from 12 to 18 weeks, and allowing time-limited or conditional approvals in defined cases.

For challenger bank boards the key point is what does not change. Under the PRA’s proposals, SMF1 stays pre-approved, alongside the CFO (SMF2), the Chief Risk Officer (SMF4), the Chair (SMF9) and the Chief Operations function (SMF24). Roles such as the committee chairs and the senior independent director would move to notification. The CEO will still need a regulatory approval before taking up the role, and the PRA has also signalled that firms should only announce pre-approved appointments as “subject to regulatory approval” where strictly necessary, after discussing them with the PRA first. HM Treasury has separately confirmed it intends to cut the statutory deadline for senior manager approvals from three months to two; the PRA reports that in the latest quarter 98% of its senior manager applications were already determined inside that proposed two-month window.

The practical message: the regime around the CEO is getting lighter, but the CEO approval itself remains the gate it has always been. Plan the search around it.

New banks: the CEO and the mobilisation route

For a bank still seeking its licence, the CEO hire is part of the authorisation case itself. The PRA and FCA run the New Bank Start-up Unit, which offers optional pre-application engagement and then two routes: full authorisation, or authorisation with restrictions, known as mobilisation. Mobilisation is designed mainly for UK start-ups. The bank is authorised but can hold no more than £50,000 of deposits in total while it raises further capital, recruits, builds its IT and finalises its controls, and it should normally exit within 12 months by applying for a variation of permission.

The regulators’ expectations of the leadership team are clear. To enter mobilisation, the PRA expects the “guiding minds” to be in place, with a minimum of a board chair, a CEO and one other executive — usually the CFO. To exit, it expects all key senior management to be in place. It also says that material changes to strategy or to key individuals during mobilisation are not expected and could lead to changes in the conditions attached to the firm. That has three consequences for the CEO search:

• The CEO is usually hired before the licence. The candidate is joining a business that may not get authorised, so the offer needs to deal honestly with that risk, and the candidate needs the appetite for it.
• The CEO approval and the firm’s authorisation are assessed together. A weak SMF1 application can damage the wider application, and a change of CEO mid-process is a significant event the regulators will want explained.
• The CEO has to build the rest of the team. A CFO, Chief Risk Officer, Head of Compliance, MLRO and an internal audit arrangement will all be needed, so the CEO’s own network and judgement on those hires is part of what the board is buying.

Candidates who have previously taken a bank through authorisation or mobilisation are scarce and in demand. Where the board cannot secure one for the CEO seat, it becomes more important to make sure at least one other senior appointment — often the CFO or chair — brings that experience.

The growth-stage brief: what a challenger bank CEO actually has to do

Most UK challengers, from the early-stage digital lenders to the larger names in our ranking of the top 20 challenger banks in the UK, are hiring a CEO to lead a business that is growing faster than its control environment. A board writing the brief should be specific about which of the following matter most at its stage:

• Scaling the control framework. Risk management, compliance, financial crime and operational resilience usually need investment ahead of the growth curve. The CEO has to make that case to investors and show the regulators the firm’s controls are keeping pace.
• Capital planning and funding. Challenger banks are capital-hungry. The CEO will spend real time with investors on further rounds, and needs to understand how growth plans translate into capital and liquidity requirements.
• Moving from founder-led to professionally managed. Where a founder is stepping back, moving to the board or remaining a major shareholder, the new CEO’s relationship with them is often the single biggest risk to the appointment.
• Technology and product. Many challengers compete on their platform. A CEO who cannot engage credibly with the technology agenda will struggle to lead the business, even if their banking record is strong. Our fintech recruitment work regularly meets this tension between banking depth and product leadership.
• Supervisory relationship. The CEO sets the tone of the firm’s engagement with its PRA and FCA supervisors. Open, well-prepared and consistent engagement is a leadership skill in its own right.

The CEO also has to sit comfortably with the wider senior management team. The PRA looks at the team as a whole, so a commercially oriented CEO usually needs to be matched with a strong prudential CFO and an experienced CRO — our guide to CRO recruitment at challenger banks and dual-regulated firms covers that hire in detail.

Three candidate profiles that work

Successful challenger bank CEO appointments tend to come from one of three backgrounds, each with its own strengths and its own approval questions.

The step-across from a larger bank. A divisional CEO, managing director or chief operating officer from a high-street, specialist or international bank brings deep banking knowledge, prior dual-regulated SMF history and immediate credibility with supervisors. The questions are cultural fit and pace: whether someone used to large-bank governance and resources will thrive in a business that moves faster with less support around it. Our commercial banking recruitment practice draws heavily on this pool for SME and specialist lenders.

The step-up from another challenger. A CFO, COO, CRO or deputy CEO at another UK challenger who is ready for the top job brings direct experience of the operating model and often of authorisation or rapid scaling. The regulatory question is that this would be their first SMF1 approval, so the board needs evidence they can carry whole-firm accountability, not just a function. The commercial question is availability: the strongest people in this pool are approached frequently, and their equity often needs to be bought out.

The adjacent regulated-sector leader. A CEO or senior executive from payments, e-money, consumer credit, wealth management or insurance brings regulated leadership and prior SMF approval. Some adapt quickly to banking; others find capital, liquidity and recovery planning a steeper climb than expected. Here the prudential competence question needs testing early, ideally with a structured technical interview, rather than being left to the regulator.

Running the search with approval in mind

The most common mistake in challenger bank CEO searches is treating regulatory approval as a back-office step that follows the offer. It should shape the search from the first conversation. In practice that means:

• Writing the brief against the regulatory profile as well as the commercial one. State the prudential and conduct capabilities the role needs, alongside the growth agenda, so both are assessed at longlist stage.
• Testing approvability early. Ask candidates about prior SMF approvals, regulatory interviews, any regulatory references or investigations, and their working knowledge of ICAAP, ILAAP and recovery planning before the shortlist is settled.
• Thorough referencing and due diligence. Regulatory references, criminal record checks, credit checks and directorship history should be underway as soon as a preferred candidate emerges, so the Form A goes in complete.
• Drafting the Statement of Responsibilities alongside the offer. The candidate should see and agree what they will be accountable for, and the document should be consistent with the responsibilities map.
• Briefing the supervisors. Telling the PRA and FCA supervisory teams about the intended appointment before submission is good practice and avoids surprises, particularly given the PRA’s stated preference that appointments are not announced prematurely.
• Preparing the candidate for interview. A candidate who has rehearsed the prudential, conduct and business model questions they are likely to face is far more likely to come through cleanly.

The chair usually owns this process. The chair–CEO relationship is central to how the regulators view governance at a bank, and the two appointments are often linked — a new chair may lead the CEO search, or a CEO change may prompt questions about the board. Where the chair seat is also in play, our chair of a regulated firm recruitment service can run both searches in sequence. For more on how the PRA views the wider board, see our article on senior board appointments at challenger banks.

Timing, interim cover and the outgoing CEO

A planned CEO succession at a challenger bank needs the search, the notice period of the incoming candidate and the regulatory determination period to run end to end, with the outgoing CEO’s exit timed to fit. Senior bank executives commonly have long notice periods, and the regulatory clock does not start until a complete application is submitted. Boards that map this out at the start of the search, and agree how long the current CEO will stay, avoid the gap that forces a rushed decision.

Where a CEO leaves unexpectedly, the 12-week rule allows someone to cover SMF1 temporarily without approval, but the cover must genuinely be temporary or the result of an unforeseen absence, a complete application for the permanent appointment must be submitted inside the 12 weeks, and the person covering is now subject to the Senior Manager Conduct Rules. Phase 2 would extend the window to 18 weeks, but the PRA has said it expects the extension to be used only with clear justification and that firms should still apply as soon as possible. Options for covering the gap include an existing approved senior manager stepping up, or an interim CEO with prior SMF1 experience who can be approved quickly in their own right.

Whatever the route, the CEO hire is the decision that most shapes how the regulators view a bank’s governance. Our regulated-firm CEO search process is built around that: a brief that reflects both the growth plan and the regulatory profile, candidates tested for approvability before they reach the board, and a clean application at the end.

Frequently asked questions

Does the PRA or the FCA approve a challenger bank CEO?

The PRA leads the approval for SMF1 at a dual-regulated bank, but it cannot make a final decision without the FCA’s consent. The firm submits one application through the PRA’s Connect system, and both regulators may interview.

How long does SMF1 approval take?

The statutory period for a complete application is currently three months, and the clock stops while the regulator waits for information or arranges an interview. HM Treasury has confirmed plans to cut the deadline to two months through the Financial Services and Markets Bill.

Will the 2026 reforms remove the need for CEO pre-approval?

No. Under the PRA’s phase 2 proposals in CP14/26, SMF1 remains a pre-approved role at dual-regulated firms, while several other functions move to notification. The proposals are expected to take effect in the second half of 2027 at the earliest.

Does a new bank need its CEO in place before authorisation?

Yes, in practice. To enter mobilisation the PRA expects at least a chair, a CEO and one other executive, usually the CFO, to be in place, and all key senior management to be in place before the bank exits mobilisation.

Can someone cover the CEO role while we search?

Yes, under the 12-week rule, provided the cover is genuinely temporary or the absence was unforeseen. Since April 2026 the firm must submit a complete application for the permanent appointment within that period, and the person covering is bound by the Senior Manager Conduct Rules.