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

The Executive Director designation under the Senior Managers Regime is one of the more frequently misunderstood Senior Manager Functions at UK regulated firms. SMF3 sits alongside SMF1 (Chief Executive) and SMF9 (Chair) as one of the governing functions, but the rules for applying it, the scope of the role and the candidate profile often differ from what boards first assume. This article sets out what the SMF3 designation actually means, when it applies, how the brief should be built, and what makes the SMF3 search different from a generic executive director search.

It is written for chairs, chief executives, nomination committees and investors at FCA-regulated and dual-regulated firms who are about to add an executive to the board, or who have realised that an existing board member needs to be approved. It also reflects the changes to the Senior Managers and Certification Regime (SMCR) that took effect in April 2026, and the further reforms the FCA and PRA consulted on in October 2026. If you are already at the point of appointing, our Executive Director (SMF3) recruitment service covers the search, the regulatory preparation and the approval stage as one piece of work.

What SMF3 Actually Covers

The SMF3 Executive Director function covers an individual who acts as an executive director of the firm — a member of the board who is also an employee or officer involved in running the business — and whose board role is not already covered by another Senior Manager Function. In practice an executive director who is also the Chief Executive is approved as SMF1, and a Chief Finance Officer on the board is approved as SMF2 at firms where that function applies. SMF3 picks up the executive directors whose seat on the board is not captured elsewhere: a Deputy CEO, a Head of UK at the UK subsidiary of an international group, a commercial director with a board seat, or a founder who still runs part of the business.

SMF3 applies at both Core and Enhanced firms under the solo-regulated regime, and at dual-regulated banks and insurers. At dual-regulated firms it is one of the functions the FCA approves on its own, rather than the PRA approving and the FCA consenting. That matters for planning: the application runs through the FCA, and the FCA’s view of the candidate’s fitness and propriety is the one that decides the outcome.

Every Senior Manager must have a Statement of Responsibilities setting out what they are accountable for. For the SMF1 Chief Executive, that statement usually covers the firm’s activities in the round. The SMF3 statement is usually narrower — covering specific business lines, functions or geographic areas that the individual manages — and it is the document the regulator will reach for if something goes wrong in that area. Our guide to Statements of Responsibilities in board appointments covers how to draft one that is specific enough to be useful.

Three things follow from SMF3 designation. The candidate must pass the FCA’s fitness and propriety assessment, covering honesty, integrity and reputation, competence and capability, and financial soundness. The candidate must accept personal regulatory accountability for the activities in their Statement of Responsibilities, including the duty of responsibility that allows the regulator to take action where a Senior Manager did not take reasonable steps to prevent a breach in their area. And the candidate must have either prior SMF experience or enough relevant senior experience that the FCA is likely to approve them through the Form A process.

When SMF3 Applies and When It Doesn’t

The trigger for SMF3 is the board seat combined with an executive role. The designation does not apply to every senior executive — only to those who sit on the board of the authorised firm in an executive capacity and are not already approved for another function that covers that seat. 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 director does not require SMF3. They may require a different SMF — at Enhanced firms most commonly SMF24 (Chief Operations) or another function-specific SMF depending on their scope — or, at many firms, they will sit outside the Senior Managers Regime altogether as a certified or conduct-rules employee. SMF3 is reserved for board-level executives. Our guide to the Senior Managers Regime and board recruitment sets out how the functions fit together across a board and executive committee.

The second is the non-executive director. Non-executive directors who hold a designated role fall under SMF9 (Chair), SMF14 (Senior Independent Director) or the committee chair functions (SMF10 to SMF13 and, at with-profits firms, SMF15), rather than SMF3. Non-executives without one of those roles are not Senior Managers at all, though the conduct rules still apply to them. 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. Some boards assume that a director who attends board meetings but has a narrow portfolio does not need approval. That is a risky assumption. The test turns on the capacity in which the person sits on the board, not on how much of the business they run: an executive on the board who is not covered by another function will generally need SMF3, even if their day job is modest. What the narrow scope does change is the Statement of Responsibilities, which should be drafted to reflect exactly what the individual owns. If there is real doubt about whether a role needs approval, take advice before the appointment is announced rather than after, because performing an SMF without approval is itself a breach.

Firm category also matters. Limited scope firms have a narrower set of functions and generally do not use SMF3 in the same way. Core and Enhanced firms do. And at small firms, one person may hold more than one function — an executive director who is also the compliance lead, for example, may need approval for both SMF3 and SMF16. Where that is the plan, the brief and the Form A both need to reflect the combined role.

Common SMF3 Role Profiles

Four role profiles recur in SMF3 appointments at FCA-regulated firms. The job titles vary from firm to firm; what links them is a board seat plus executive responsibility for a defined part of the business.

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 Responsibilities usually covers the operational scope of the role — operations, technology, change and some combination of commercial functions. Where the firm is Enhanced and the individual also performs the Chief Operations function, the firm needs to think through whether SMF24 is the better fit for the regulatory picture, and say so in the brief.

Head of UK or Country Head at international firms. The UK subsidiary of an international group often appoints its most senior UK-resident executive as an SMF3 director, with the Statement of Responsibilities covering the UK firm’s activities. This pattern is common at international banks, asset managers and insurance groups with UK subsidiaries. The search has an extra dimension here: the candidate needs to hold their own with a parent board overseas while satisfying a UK regulator that decisions affecting the UK entity are taken, and owned, in the UK.

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 Responsibilities usually covers the commercial business lines in their scope. Under the Consumer Duty, this is a role where the regulator will expect the individual to understand how product design, pricing and distribution decisions translate into customer outcomes — a point that should shape both the brief and the interview.

Founder-shareholder with an executive board role. At founder-led firms and some private equity-backed regulated firms, founders and major shareholders who continue to hold executive board positions typically require SMF3. The scope of the Statement of Responsibilities depends on the executive functions they retain. These appointments often arise at a transition — a new CEO is coming in and the founder is stepping back to a narrower executive role — and the brief for the incoming CEO needs to describe the founder’s retained responsibilities honestly. Our guide to hiring a CEO who has never held an SMF role covers the related problem of bringing in a first-time SMF1 alongside an experienced founder.

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 usually 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 — a past enforcement matter at a previous employer, an unresolved regulatory reference, or simply no evidence of having operated under personal accountability before. None of those is automatically disqualifying, but each needs to be identified and handled before the offer, not discovered in the Form A.

Second, the Statement of Responsibilities 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 Responsibilities describes what the regulator considers the individual accountable for. The brief needs to set out that scope clearly, and candidates need to understand it before they can evaluate the role properly. Experienced Senior Managers will ask to see a draft early, and the strongest candidates are often the ones who push back on vague drafting.

Third, the relationship with the SMF1 Chief Executive matters. The SMF3 executive director works closely with the CEO, and the working relationship often decides whether the appointment succeeds. The brief should describe the CEO’s working style, the dynamics of the existing executive team and the kind of partnership the firm wants to build. The chemistry dimension is often more important than the assessment of specific skills, and it is harder to test, which is why it needs deliberate attention in the process rather than being left to a final dinner.

Taken together, these three differences mean the SMF3 search is best run as a regulated appointment from the outset. That is the approach we take on every SMF3 executive director search: the regulatory scope, the approval route and the CEO relationship are agreed with the client before the first candidate conversation, so the market hears a consistent and accurate account of the role.

Brief Construction: Five Specifics That Often Get Missed

The Statement of Responsibilities 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, and the allocation should match the management responsibilities map at Enhanced firms. The brief should be specific about the activities the new SMF3 will own, the activities they will share, and anything that is deliberately left with another Senior Manager.

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, and at senior level they will often speak to former colleagues of the CEO before engaging seriously.

The relationship with other SMF holders. SMF3 executive directors typically work alongside other Senior Managers — the SMF2 CFO, the SMF4 CRO, the SMF24 COO, and the SMF16 Compliance Oversight and SMF17 MLRO holders, depending on the firm’s structure. The brief should describe how the SMF3 role interacts with these functions and where the boundaries sit. Where the compliance or MLRO function is covered on a part-time basis, say so: candidates will want to know how much support they can expect on regulatory matters in their area.

Regulator engagement expectations. The SMF3 holder typically engages with the regulator on matters within their Statement of Responsibilities. The brief should describe the frequency and depth of regulator engagement, the firm’s current supervisory relationship, any open remediation or section 166 work, and the role the candidate is expected to play. A candidate who discovers an open supervisory issue after accepting the role is a candidate the firm may lose.

The expected progression path. Many SMF3 appointments carry an implicit or explicit succession dimension — the SMF3 holder may be a successor to the SMF1 CEO over time, or they may be appointed as a deputy with no succession intent. The brief should be honest about the progression expectations, because this materially affects who applies. If succession is part of the plan, the board should also think about how the candidate would fare in an SMF1 application in due course, since that will be a separate approval.

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 at an FCA-regulated firm in a similar sector tend to move through approval more smoothly and bring directly relevant experience to the role. This pool is finite, and the most desirable candidates are usually being approached by several firms at once. They also tend to be the most demanding about the Statement of Responsibilities, the quality of the control functions around them and the firm’s regulatory history — which is a good thing, but the firm needs to be ready for those questions.

The second is the senior executive from a non-regulated commercial role with relevant scale who is moving into the regulated sector. This pool is broader but needs careful assessment: the candidate’s likelihood of passing fitness and propriety, their willingness to accept personal regulatory accountability, and their capacity to learn the regulated financial services context quickly. The strongest candidates in this pool can give specific examples of how they have handled regulator engagement in adjacent contexts — a listed company, a heavily regulated industry such as energy or healthcare, or a business that sat inside a regulated group without being authorised itself.

Whichever pool the firm draws from, the regulatory check should run alongside the search rather than after it. Regulatory references, criminal records checks and directorship history can all be gathered once a preferred candidate emerges, and any issue is far easier to manage at that stage. For a wider view of how specialist search firms approach regulated appointments, see our overview of executive search firms for FCA-regulated firms.

Timeline and Approval Realities

Under FSMA the FCA must decide a complete Senior Manager application within three months of receiving it, and the clock can stop if the FCA needs more information or wants to interview the candidate, as its page on how it assesses SMF applications explains. The FCA has also set itself a voluntary target of completing at least half of senior manager applications in no more than 35 days, and has proposed reducing the statutory deadline for all applications to two months, according to its announcement on faster authorisation targets. Those are targets, not promises for any individual case: an application with gaps, a candidate with a complex history or a firm under close supervision can take longer.

The search itself sits in front of that. Defining the brief and the Statement of Responsibilities, approaching the market, interviewing, referencing and negotiating all take time, and senior candidates usually have notice periods to serve. Boards should therefore plan the whole sequence — brief, search, offer, Form A, approval and start — rather than treating the Form A as an administrative back-end step. Our guide to the FCA Form A approval process covers the application itself in more detail.

Two practical points help. First, prepare the Form A while the search is running, so that once a preferred candidate is chosen the application can go in quickly and complete. Second, decide early whether interim cover is needed. If the seat is vacant, or the outgoing holder is leaving before a successor can be approved, the firm needs to know how the responsibilities will be covered in the gap and whether the temporary cover rules apply.

What the Recent SMCR Reforms Mean for SMF3

The FCA’s PS26/6, published alongside the PRA’s companion policy statement, brought the first phase of SMCR reforms into force on 24 April 2026, with some further changes following later in the year. Several of the changes bear directly on SMF3 appointments:

• The 12-week rule is now a submission deadline. Where someone covers an SMF role temporarily, the firm must submit the application within 12 weeks rather than obtain approval within 12 weeks, and the person covering can stay in post until the regulator decides. The Senior Manager conduct rules apply to that person while they cover.
• Criminal records checks last longer. A check for an SMF candidate is now valid for six months rather than three, which gives more room when an offer and the Form A do not line up neatly. Checks are no longer needed for internal or intragroup moves.
• Regulatory references are due faster. The expected response time for a regulatory reference has been cut from six weeks to four, which should shorten one of the more common delays in the pre-application stage.

The second phase is still at consultation. In October 2026 the FCA published CP26/37 and the PRA published a parallel consultation, both closing on 22 January 2027. Among other things, the FCA proposes moving a set of functions — SMF5 (Head of Internal Audit) and the committee chair and Senior Independent Director functions, SMF10 to SMF15 — from pre-approval to notification at dual-regulated and Enhanced firms. It also proposes extending the temporary cover period from 12 to 18 weeks, removing the certification regime, and trimming some Statement of Responsibilities and responsibilities map requirements.

SMF3 is not on the list of functions proposed for notification. On the current proposals, an Executive Director will still need FCA approval before taking up the role, so the fitness and propriety assessment, the Form A and the approval timeline remain central to the SMF3 search. Final rules are expected in 2027; until they are published, firms should plan on the rules as they stand today. Our article on how SMCR is changing the senior appointment timetable follows the reforms in more detail.

Interim and Fractional Cover Around an SMF3 Appointment

An SMF3 appointment rarely happens in isolation. Adding an executive director to the board often exposes gaps elsewhere in the Senior Manager line-up — most commonly in compliance oversight and money laundering reporting, which smaller and growing firms frequently cover on a part-time basis. A new executive director with responsibility for a commercial or operational area will want to know who holds SMF16 and SMF17, how much time they give the firm, and whether that capacity is enough for what the business is about to do.

For many firms the answer is a fractional appointment. A fractional compliance officer approved as SMF16, a fractional MLRO approved as SMF17, or one experienced individual holding both functions a few days a month, can give the board the regulatory capability it needs without a full-time salary. Where the firm needs a full-time compliance lead instead, our SMF16 Head of Compliance recruitment service covers permanent and interim hires.

Interim cover can also bridge the SMF3 seat itself. If an executive director leaves before a successor is approved, an interim executive can hold the responsibilities under the temporary cover rules while the permanent search and Form A run. The brief for that interim should be as clear about the Statement of Responsibilities as the permanent one, because the conduct rules apply from day one.

Common Pitfalls Boards Should Avoid

Four 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 and the approval timeline. Searches that approach SMF3 as a generic senior commercial director search often produce shortlists that struggle through approval, or appointments that are announced before the regulatory position has been thought through.

The second is over-weighting commercial scale relative to familiarity with regulated financial services. The regulatory learning curve for a candidate new to FCA-regulated work is steep. Boards that prioritise commercial track record over regulated experience sometimes end up with directors who struggle in their first year, particularly with the personal accountability that comes with the Statement of Responsibilities and with the pace of supervisory engagement.

The third is under-investing in the assessment of the CEO–SMF3 working relationship. That relationship sits at the centre of the role. Searches that focus on capability and skip the chemistry dimension regularly produce appointments that struggle on integration, and an early departure from an SMF role is visible to the regulator and to the market.

The fourth is leaving the Statement of Responsibilities until after the offer. If the statement is drafted after the candidate has accepted, the firm risks a mismatch between what was sold and what the regulator is told, and an experienced candidate may reopen the terms. Drafting it early keeps the search, the offer and the Form A consistent.

Frequently asked questions

Does every executive director at an FCA-regulated firm need SMF3?

At Core and Enhanced firms, an executive on the board whose seat is not already covered by another Senior Manager Function will generally need SMF3 approval. A CEO on the board is approved as SMF1, and other executives may hold a function-specific SMF instead. Limited scope firms have a narrower set of functions.

Is SMF3 approved by the FCA or the PRA?

By the FCA. At dual-regulated firms, SMF3 is one of the functions the FCA approves on its own, so the application and the fitness and propriety assessment run through the FCA.

How long does SMF3 approval take?

The FCA must decide a complete application within three months, and aims to complete at least half of senior manager applications in no more than 35 days. Incomplete applications, interviews and complex candidate histories can extend that. Plan the Form A alongside the search so it can be submitted complete.

Will the proposed SMCR reforms remove the need for SMF3 approval?

Not on the current proposals. CP26/37 proposes moving SMF5 and SMF10 to SMF15 to notification at dual-regulated and Enhanced firms, but SMF3 is not on that list and would remain a pre-approved function. The consultation closes on 22 January 2027.

Can an SMF3 executive director also hold SMF16 or SMF17?

At smaller firms one person can hold more than one function, provided they are approved for each and have the time and competence to do both. Many firms prefer to keep compliance oversight independent of a commercial executive and cover SMF16 and SMF17 on a fractional basis instead.

What happens if our executive director leaves before a successor is approved?

Under the temporary cover rules, another person can cover the role while the firm submits an application within 12 weeks, and can remain in post until the regulator decides. The FCA has proposed extending that period to 18 weeks.