The Dual SMF Holder at Smaller Regulated Firms

The Dual SMF Holder: When One Person Covers Multiple Functions at Smaller Regulated Firms

At larger regulated firms, the Senior Manager Functions are generally held by different individuals. The CEO is one person, the CFO another, the CRO a third, and so on. This separation is both practically necessary — given the scale and complexity of the organisations — and regulatorily desirable, since it distributes accountability and reduces the risk of conflicts between functions. But at smaller regulated firms, this clean separation is frequently not possible. The firm may have three or four senior individuals who between them must cover the full range of SMF designations, and the practical reality is that one person will hold multiple functions simultaneously.

The dual or multiple SMF holder arrangement is recognised in the FCA’s framework, but it comes with specific regulatory requirements and risks that boards and senior managers at smaller firms need to understand. This guide sets out how the arrangement works, what the FCA expects, and how to manage it well.

Which SMF Combinations Are Permitted

The FCA Handbook SUP 10A permits most combinations of SMF functions to be held by a single individual, with specific exceptions designed to preserve the independence of oversight functions. The most important prohibition for smaller firms is that the SMF responsible for Compliance Oversight (SMF16) cannot be the same individual as the CEO (SMF1) at most regulated firm types. The MLRO (SMF17) can in certain circumstances be combined with other functions, but the FCA’s guidance makes clear that the MLRO must have genuine independence and the capacity to fulfil the role properly.

Similarly, the Head of Internal Audit (SMF5) must be independent of the activities they audit. Combining SMF5 with an executive management function — including the CEO, CFO or COO — is therefore not possible in a way that preserves genuine independence. At very small firms where a formal internal audit function is not separately required, SMF5 may not be a mandated designation, which resolves the problem structurally rather than through a combined role.

Common Combination Patterns at Smaller Firms

The most common dual SMF arrangements at smaller FCA-regulated firms involve combinations of: CEO (SMF1) and Executive Director (SMF3), where the same individual holds both the chief executive and an additional executive director designation covering a specific functional area; CFO (SMF2) and other finance or treasury functions; COO (SMF24) and other operational oversight functions; or Chair (SMF9) and committee chair functions (SMF10–13) where the chair doubles as the chair of one or more board committees.

At very small firms — particularly solo-regulated authorised firms with fewer than ten employees — it is not uncommon for the CEO to hold three or four SMF designations simultaneously, covering executive leadership, compliance oversight (where permitted), specific functional areas, and in some cases MLRO responsibilities. The FCA is aware that this is the practical reality for smaller firms and does not in principle object to multiple SMF holdings, provided that the individual genuinely has the capacity and competence to fulfil each designation properly.

What the FCA Assesses in Dual SMF Situations

When reviewing a Form A application for an individual who will hold multiple SMF functions, the FCA assesses whether the candidate has the competence and capacity to fulfil each function properly — not just the most senior of the designated roles. An individual who is credible as a CEO but lacks the technical expertise for a combined CRO designation, or who does not have adequate time to fulfil the MLRO responsibilities properly alongside their executive commitments, will face FCA challenge on those specific aspects of the application.

The FCA’s fitness and propriety assessment for a dual SMF holder is therefore more complex than for a single-function holder, and the Form A submission must address each designated function separately. The regulatory references required cover the candidate’s experience across all designated areas, and the Statement of Responsibilities must reflect the full scope of each function rather than combining them into a single high-level description that obscures the breadth of accountability being assumed.

The Risk of Overloading: Regulatory and Governance Implications

The most significant risk associated with dual SMF arrangements at smaller firms is not the regulatory permission to hold multiple functions — it is the practical reality of whether one person can genuinely exercise all of them to the standard the regulation requires. A CEO who holds the compliance oversight function but has neither the time to engage with compliance matters in depth nor the background to assess the quality of compliance advice is not providing the oversight that SMF16 requires, regardless of the fact that the designation has been formally approved.

This creates two types of risk for the firm. First, it creates a regulatory risk: if a compliance failure occurs in an area where the CEO holds SMF16, the FCA will assess whether the CEO took reasonable steps to prevent the failure in their capacity as the Compliance Oversight holder. A CEO who can demonstrate active engagement with compliance matters — regular meetings with the compliance function, documented review of compliance monitoring reports, personal involvement in significant compliance decisions — is better protected than one whose compliance oversight was nominal. Second, it creates a governance risk: the board’s oversight of the compliance function depends on the CEO’s SMF16 accountability being genuine, and a board that has allowed the compliance oversight designation to become a paper function has created a gap in its governance that the FCA will identify.

When to Separate Functions as the Firm Grows

One of the most important governance decisions at a growing regulated firm is identifying the point at which a combined SMF arrangement should be separated. There is no single threshold that triggers this requirement, but the factors that typically indicate the firm has grown beyond a combined arrangement include: the volume and complexity of compliance and risk matters increasing to the point where dedicated professional oversight is required; the FCA’s supervisory engagement suggesting expectations of more specialist function leadership; the firm seeking to expand its regulatory permissions in ways that will increase the technical demands on the compliance or risk function; and the recruitment of additional senior staff whose management requires more of the CEO’s time than was previously the case.

Proactive separation of combined SMF functions — before regulatory pressure requires it — consistently produces better outcomes than reactive separation. Exec Capital regularly advises growth-stage regulated firms on the timing and sequencing of SMF separation, and we conduct the search for the first standalone compliance, risk or audit function leader at firms that are making this transition.

Drafting the Statement of Responsibilities for a Dual SMF Holder

The Statement of Responsibilities for a dual SMF holder requires particular care. The document must accurately reflect all designated functions and must not create ambiguity about the scope of accountability for each. The most common mistake is combining the responsibilities of multiple functions into a single description that loses the specific accountability associated with each — producing an SoR that satisfies the formal requirement but does not provide the clarity about individual accountability that the regime is designed to deliver.

Exec Capital works with compliance and legal advisers at smaller firms to ensure that Statements of Responsibilities for dual SMF holders are accurate, comprehensive, and structured to provide genuine accountability clarity. We also advise on the Management Responsibilities Map requirements that apply alongside the individual SoRs.

Working with Exec Capital

Exec Capital works with smaller FCA-regulated firms on both executive and compliance function appointments — including the transition from combined to separated SMF arrangements as firms grow. We understand the specific constraints and requirements of smaller regulated firm governance and we structure our search engagements accordingly. Call Adrian Lawrence FCA on 0203 834 9616.