Interim SMF16 & SMF17 Cover During an FCA VREQ

Interim SMF16 & SMF17 Cover During an FCA VREQ

When an FCA-regulated firm is under active supervisory attention and its Compliance Oversight function (SMF16) or Money Laundering Reporting Officer (SMF17) departs — or, at many smaller firms, the single person holding both functions resigns — the board faces two problems at once. There is a live regulatory matter that demands senior compliance leadership, and there is a control gap in exactly the place the regulator is looking hardest. How quickly, and how credibly, that gap is filled tends to shape how the wider supervisory matter develops.

This guide is for boards, new owners and controllers, chief operating officers and general counsel of FCA-regulated firms who need to understand the options, act quickly, and put credible cover in place without making the supervisory position worse. It covers what a voluntary requirement (VREQ) is and where it sits in the FCA’s supervisory toolkit; why a compliance or MLRO vacancy is so much more serious inside a supervisory matter than outside one; your immediate options for cover, including the 12-week rule; what “credible to the FCA” actually means for an interim appointment; how sector, financial crime and change-of-control considerations change the brief; what interim and permanent SMF cover typically costs; and how Exec Capital sources the right people at short notice. It closes with a detailed FAQ.

A note on scope: this is general guidance on the senior-recruitment and interim-cover decision. It is not legal, compliance or regulatory advice. Your skilled person, compliance consultancy and legal counsel should lead the remediation and regulatory strategy itself; our role, and the focus of this guide, is putting the right people in the seats, fast.

Where a VREQ sits in the FCA’s supervisory toolkit

A voluntary requirement rarely arrives out of nowhere. It usually appears partway along a recognisable supervisory path, and understanding that path helps a board judge how serious its situation is and how fast it needs to act.

The sequence often begins with information-gathering. The FCA may issue a request for information and documents — frequently referred to by its statutory basis, a section 165 request — to understand a concern it has identified through routine supervision, a return, a complaint, a whistleblowing report or a market event. That is commonly followed by a feedback letter setting out the regulator’s concerns and expectations. Where the concerns are material, the FCA may seek a requirement on the firm’s permission. If the firm agrees to that requirement, it is a voluntary requirement, or VREQ; if the FCA imposes it using its own powers, it is an own-initiative requirement, or OIREQ. In more serious cases the regulator may also commission an independent skilled-person review — known by its statutory basis as a section 166 review — under which a qualified third party reports to the FCA on defined aspects of the firm. At the far end of the spectrum sits enforcement.

The important point for a board is that a VREQ and a skilled-person review are supervisory tools, not enforcement outcomes. They are the mechanisms the FCA uses to contain a risk and get a firm back to a sound footing. Handled well, with credible senior leadership in place, they are a recoverable, time-bound process — not the end of the road.

What a VREQ signals — and what it requires

A VREQ is a requirement a firm agrees to accept on its Part 4A permission, generally in place of the FCA imposing one of its own initiative. It usually restricts or requires specific actions. Common examples include limiting or pausing certain new business, ceasing a particular activity, ring-fencing an operation, holding or handling client money or assets in a defined way, obtaining the regulator’s non-objection before taking certain steps, or committing to a defined remediation programme against an agreed timetable. The firm typically continues to operate, but within agreed boundaries.

A well-constructed VREQ is often a negotiated, proportionate instrument. A firm and its advisers can frequently propose a limited and temporary VREQ — for example one that allows the firm to keep servicing existing clients while it remediates, rather than a blanket restriction that would damage the business and customers alike. The regulator’s objective is to contain a perceived risk while the underlying issues are fixed; the firm’s objective is to fix them while preserving as much of the business as possible. Credible senior compliance leadership is central to both.

Voluntary versus imposed requirements

The distinction between a VREQ and an OIREQ matters more than it first appears. A voluntary requirement signals cooperation and lets the firm negotiate the terms; an own-initiative requirement is imposed and tends to carry a heavier reputational weight. Firms almost always prefer the voluntary route, and a constructive, well-advised firm with credible people in post is in a far stronger position to keep the requirement voluntary, proportionate and time-limited. A firm that cannot demonstrate it has its house in order — including a properly staffed second line — has less room to negotiate.

Why SMF16 and SMF17 holders often resign at exactly this moment

It is not a coincidence that compliance and MLRO resignations cluster around supervisory events. SMF16 and SMF17 are personally accountable roles under the Senior Managers and Certification Regime. The individuals holding them carry personal regulatory exposure for the areas they are responsible for, and a supervisory matter is precisely when that exposure feels most acute. Some holders conclude that the firm’s issues predate them, or that they lack the resources or mandate to fix them; others receive advice about their own position. Whatever the reason, a resignation at this point is common — and it leaves the firm exactly where it can least afford to be.

Why an SMF16 or SMF17 vacancy is so urgent here

Outside a supervisory matter, a compliance or MLRO vacancy is a normal recruitment exercise that can take weeks or months. Inside one, it is a live governance risk that needs to be resolved in days. With no one formally accountable for compliance oversight or money-laundering reporting, the firm cannot credibly demonstrate that it is being managed and controlled — and that is the very question the regulator is testing. An unfilled SMF16 or SMF17 role can turn a manageable supervisory conversation into a more serious one, because it suggests the firm cannot maintain even its baseline regulatory functions under pressure. The vacancy needs to be addressed quickly and visibly, with credible cover and prompt, appropriate engagement with the FCA.

Your notification obligations when a senior manager leaves

When an approved person ceases to perform a Senior Manager Function, the firm has notification obligations to the regulator, and there are established forms and timelines for recording the departure and the proposed replacement. In a live supervisory matter, the firm will also want to keep the FCA informed of how it is filling the gap, in a manner and to a timetable agreed with the regulator and counsel. The detail of what to file, when, and how to frame it is a question for your legal counsel and compliance consultancy — but the practical takeaway is that the departure cannot simply be managed quietly in the background. It needs a clear, documented plan for cover, and that plan is far more reassuring to a regulator when a credible name is attached to it.

Your immediate options for cover

There are broadly three routes to cover, and they are not mutually exclusive. Most firms in a live VREQ situation combine them — bridging immediately while building towards a permanent solution.

• The 12-week rule. The Senior Managers regime allows a firm, in defined circumstances, to have an individual perform an SMF for a limited period without that person being separately approved, to cover an absence that is temporary or reasonably unforeseen. In practice this can be the mechanism that lets a firm drop credible interim cover into the seat immediately while a full approval application is prepared. Whether it is available and appropriate in your specific circumstances is a question for your counsel.
• Interim appointment with an approval application to follow. A strong interim is engaged now and, where the engagement is to continue beyond a short bridge, an approval application is submitted so the individual becomes formally approved to hold the function.
• A direct permanent appointment. Usually the slowest route because of the approval timeline, and rarely the right first move when the seat is empty today — but the destination most firms are working towards.

The 12-week rule in more detail

The 12-week rule exists precisely for situations like an unexpected resignation. Broadly, it allows a firm to appoint an individual to perform an SMF for up to twelve weeks in a consecutive twelve-month period without that individual first being approved, where the appointment is to cover a temporary or reasonably unforeseen vacancy. It is a bridge, not a destination: it buys the firm time to either secure approval for the interim or appoint a permanent holder. Two practical points matter. First, the interim still needs to be genuinely capable and credible — the rule removes the prior-approval step, not the need for a competent person in the seat. Second, in a live supervisory matter where the FCA is already engaged, the regulator will take a close interest in who is performing the function even under the 12-week route, so the credibility of the individual is paramount. Take your own regulatory advice on whether and how to rely on the rule.

What “credible to the FCA” actually means

In a supervisory matter the bar for an interim is higher than for a routine hire, because the regulator is already engaged and will look closely at whoever steps in. In our experience, credibility in this context means a combination of the following:

• A genuine recent record of holding SMF16 and/or SMF17. Someone who has recently performed the function — ideally at a firm of comparable type — is a known quantity and a far easier fit-and-proper proposition than a first-timer.
• Sector relevance. The firm’s permissions and business model matter. Investment-management, wealth, corporate-finance, payments, e-money, lending and banking firms each carry different regulatory emphases, and an interim whose background matches the firm’s activities will be more credible and more useful.
• Hands-on capability. Supervisory matters reward operators, not advisers. The right interim can run the function day to day — reviewing files, taking decisions, engaging the regulator — not just opine on it.
• UK presence and availability. Where the FCA has questioned a firm’s UK management and control, an interim who can clearly evidence a UK base and engage in person, at pace, with the board, counsel, the skilled person and the regulator, is materially more valuable than one who cannot.
• A clean fit-and-proper position. Honesty and integrity, competence and capability, and financial soundness all need to stand up to scrutiny, because they will be scrutinised.

A candidate who ticks the experience box but cannot evidence UK management and control, or cannot start for several weeks, is usually the wrong answer in this situation.

Sector fit: why an investment-management VREQ needs different cover from a payments one

Regulated firms are not interchangeable, and neither are the people who lead their compliance functions. An asset manager or wealth manager under a VREQ will typically need an interim steeped in investment-management regulation — conduct of business, client assets, suitability, market conduct, conflicts of interest, and the financial-crime profile of investment clients. A payments or e-money firm will need someone fluent in the payments and e-money regime, safeguarding and transaction monitoring. A corporate-finance house has its own conduct and inside-information emphases. Putting a strong payments compliance officer into an investment-management VREQ — or vice versa — is a mismatch the regulator will notice. Matching the interim’s sector background to the firm’s permissions is one of the most important, and most frequently underestimated, parts of the brief.

The financial-crime dimension: CDD, EDD, PEPs and source of wealth

Many VREQ situations have a financial-crime component, and for some firms — particularly those owned or controlled by a family office, a high-net-worth principal, or investors from higher-risk jurisdictions — the source-of-wealth and source-of-funds question sits at the very centre of the matter. An interim MLRO in this position needs real depth in customer due diligence and enhanced due diligence, politically exposed person screening, sanctions, and the documentation and challenge of source of wealth and source of funds. Where the remediation is heavily financial-crime-weighted, the firm may be better served by pairing an approved SMF holder with a dedicated, hands-on financial-crime and remediation specialist, so that the deep CDD/EDD work has an owner while the formal accountability sits with an approved individual.

Combined SMF16/SMF17, or split the functions?

Many smaller firms run SMF16 and SMF17 through one person, and a single credible, recently approved combined holder is often the cleanest answer in a supervisory matter — one accountable individual, one point of contact for the regulator, and the simplest story to tell. But it is not the only model. Where the strongest available financial-crime operator has not previously held the functions, splitting them — or pairing an already-approved SMF holder with a hands-on financial-crime and remediation lead — can give the firm approved cover from day one while still adding the operational horsepower the remediation needs. The right structure depends on the candidates actually available and on the steer from counsel and any independent reviewer. The combined model is usually the preference where a single credible, approved candidate exists; the paired model is the pragmatic fallback where they do not.

When a first-time SMF candidate is, and isn’t, the answer

A candidate who has never personally held SMF16 or SMF17 approval can be exactly the right hands-on hire for the financial-crime, CDD and EDD remediation workstream — a former deputy MLRO or a senior financial-crime consultant, for instance, may have outstanding operational depth. But appointing a first-timer into a combined SMF16/SMF17 role in a live supervisory matter is a central fit-and-proper question, and one the FCA will scrutinise closely: a firm under pressure proposing an individual who has never held either function as the holder of both invites obvious questions. The pragmatic answer is often to deploy that person immediately on the remediation work alongside an already-approved SMF holder, so the firm has approved cover from day one while the first-timer’s own approval is progressed in parallel.

The change-of-control overlay

A new owner or controller who has recently acquired, or taken control of, an FCA-regulated firm may inherit a supervisory matter rather than create one. The challenge is similar but the stakes are sharper. A new controller has to demonstrate effective UK management and control at precisely the moment the regulator is questioning it — and, depending on the structure, may itself have been through, or be going through, a change-in-control approval. Securing credible interim and then permanent SMF16/SMF17 cover is a large part of how a new owner evidences that it is a fit and capable steward of the firm. It is usually the most pressing senior appointment on the list, and it is often best filled by someone who has operated through change-of-control and supervisory situations before and understands the additional scrutiny they bring.

Interim, fractional or permanent for SMF cover?

Three engagement models are available, and the right one depends on the firm’s size, the stage of the matter and the workload. An interim is a full-time or near-full-time senior resource engaged for a defined period — the standard answer for the acute phase of a supervisory matter, when the function needs a credible, accountable, present pair of hands. A fractional appointment — a senior holder working a defined number of days per week — can suit a smaller firm whose ongoing workload does not justify a full-time role, though in the intensive phase of a VREQ most firms need more than a day or two a week. A permanent appointment is the destination, and the right structure once the firm is stabilised and moving back towards growth. Many firms move through all three: full-time interim to stabilise, then a permanent hire, with a fractional arrangement sometimes bridging the two.

What interim and permanent SMF16/SMF17 cover costs

Cost depends on the firm’s size, the seniority and scarcity of the profile, and the intensity of the situation, but indicative UK market ranges are useful for planning. Credible interim SMF16/SMF17 cover in a live supervisory matter rarely comes below around £1,200 a day, because the risk and the level of scrutiny command a premium; a strong dual-function interim typically sits in the region of £1,200–£1,600 a day, and candidates with ex-regulator backgrounds or proven section 166 and VREQ remediation track records can sit higher, in the region of £1,400–£2,000 a day. A permanent combined SMF16/SMF17 appointment at a smaller regulated firm typically falls in the region of £130,000–£190,000 base, with the upper end reflecting a live turnaround and the breadth of a combined role. These are planning ranges only; the right number depends on the specifics, and we are happy to calibrate quickly against your situation.

How quickly can cover be in place?

For a routine senior hire, a shortlist within three to seven working days is typical. For an urgent SMF cover situation, the first credible names can usually be in front of a board faster than that, because the right candidates are drawn from an existing, pre-qualified network rather than a cold search. Where the 12-week route is used, an interim can begin almost immediately once engaged; where formal approval is required first, the timeline is governed by the regulatory process rather than by the search. The practical message is that the search itself need not be the bottleneck — credible cover can move at the speed the situation demands.

From interim cover to permanent — and back to growth

The sequence that works is consistent: stabilise the firm with credible interim cover, support the delivery of the agreed remediation, restore the firm’s regulatory footing and governance, then transition to a permanent appointment and a growth phase. Framed that way, the VREQ period is not an ambulance job — it is a defined turnaround with a clear path out the other side, and the senior compliance appointment is the keystone of it. The best outcomes come when the interim and permanent tracks are run together from the start, so the firm is never again caught without a plan for who holds the function next.

How Exec Capital finds the right candidates at short notice

Speed in these situations does not come from searching harder; it comes from already knowing the people. Exec Capital maintains a live, curated network of FCA-experienced compliance and MLRO professionals — including approved SMF16 and SMF17 holders, former regulators, and senior financial-crime and remediation specialists — many of whom are between mandates and immediately available. When a firm calls with an urgent cover need, the work is one of matching and verifying rather than starting from zero. In practice that means we can:

• Shortlist from a known pool. Rather than advertise and wait, we go straight to individuals we already know hold the right approvals and sector background and are available now.
• Verify FCA Register status quickly. We confirm a candidate’s recent SMF16/SMF17 approvals and history against the FCA Register before they reach you, so the fit-and-proper story is sound from the outset.
• Pre-check the basics. We sense-check conflicts, independence, availability and willingness to operate in a live supervisory environment up front, so the names you see are genuinely deployable.
• Structure the cover sensibly. We advise on the combined-versus-split question against who is actually available — for example pairing an approved SMF holder with a hands-on financial-crime lead where that gives the firm approved cover from day one.
• Run interim and permanent in parallel. We bridge the immediate gap while building the permanent solution, so the firm is not solving the same problem twice.
• Move at founder speed. Every mandate is led personally by Adrian Lawrence FCA, so the senior judgement calls happen immediately rather than being escalated through layers.

Representative examples of short-notice cover

The following are representative of the kinds of short-notice mandates we handle. They are illustrative composites, not identifiable clients.

• A wealth manager facing a skilled-person review. A firm lost its combined SMF16/SMF17 days before a skilled-person review was due to begin. We introduced an interim with recent combined SMF16/SMF17 experience at a comparable wealth manager, immediately available and UK-based, who bridged the function while a permanent search ran alongside — giving the board a credible, present holder to put in front of the reviewer and the regulator.
• A firm under a VREQ with a heavy financial-crime remediation. The most pressing need was hands-on CDD and EDD remediation, but the strongest available financial-crime operator had not previously held an SMF. We paired that specialist, deployed full-time on the remediation, with an already-approved interim SMF holder, so the firm had approved cover from day one while the specialist’s approval was progressed.
• A newly acquired regulated firm inheriting supervision. A new controller took on a firm already in a supervisory matter. We sourced an interim who had operated through both change-of-control and supervisory situations, and a permanent candidate to transition into once the firm had stabilised — helping the new owner evidence effective UK management and control at the point it mattered most.

Frequently asked questions

What is an FCA VREQ?

A VREQ, or voluntary requirement, is a requirement a firm agrees to accept on its FCA permission — usually in place of one the FCA would otherwise impose. It typically restricts or requires specific actions, such as pausing certain new business or committing to a remediation programme, while allowing the firm to keep operating within agreed limits.

What is the difference between a VREQ and an OIREQ?

A VREQ is agreed by the firm; an own-initiative requirement (OIREQ) is imposed by the FCA using its own powers. Both bind the firm to similar effect, but the voluntary route signals cooperation, allows the terms to be negotiated, and is generally less damaging to the firm’s standing.

Can a firm keep operating without an SMF16 or SMF17?

A firm that requires these functions cannot simply leave them unfilled for any length of time, and doing so during a supervisory matter is a serious governance risk. The functions must be covered — whether through the 12-week rule, an interim pending approval, or a permanent appointment — and the regulator kept appropriately informed.

Does an interim SMF16 or SMF17 need to be FCA-approved before starting?

Not necessarily on day one. The 12-week rule can, in defined circumstances, allow an individual to perform an SMF for a limited period without prior approval, to cover a temporary or reasonably unforeseen vacancy. Beyond that bridge, formal approval is required. Whether and how to rely on the rule is a question for your counsel.

How long can the 12-week rule be used?

Broadly, up to twelve weeks in a consecutive twelve-month period, to cover a temporary or reasonably unforeseen absence. It is a bridge to either approval of the interim or a permanent appointment, not a permanent solution in itself.

Can one person hold both SMF16 and SMF17?

Yes. Many smaller firms combine the Compliance Oversight (SMF16) and MLRO (SMF17) functions in a single individual, and a credible combined holder is often the cleanest answer in a supervisory matter. Where no single approved candidate fits, the functions can be split or paired with a financial-crime specialist.

How quickly can you provide an interim MLRO or compliance officer?

Because the right candidates come from an existing, pre-qualified network rather than a cold search, the first credible names can usually be in front of a board within days. Where the 12-week route is used, an interim can begin almost immediately once engaged.

What does an interim SMF16/SMF17 cost per day?

As an indicative UK range, credible interim cover in a live supervisory matter generally starts around £1,200 a day; a strong dual-function interim typically sits around £1,200–£1,600 a day, and ex-regulator or proven remediation specialists higher again. The right figure depends on the profile and the situation.

What is a section 166 skilled-person review?

It is a review carried out by an independent qualified third party — the skilled person — who reports to the FCA on defined aspects of a firm, such as its systems and controls or financial-crime framework. It is a supervisory tool used to give the regulator independent assurance, often alongside a VREQ, and is not in itself an enforcement action.

What happens to a person’s SMF approval when they leave the firm?

SMF approvals are specific to the individual at a particular firm and do not transfer. When an approved person leaves, their approval for that function at that firm ceases, and a new holder requires a fresh application. A recently approved candidate is still far easier to approve than a first-timer, because they are a known and recently assessed quantity.

Do we have to notify the FCA when our MLRO or compliance officer resigns?

Yes — the departure of an approved person carries notification obligations, with established forms and timelines, and in a live supervisory matter the firm will also want to keep the regulator informed of its plan for cover. The specifics should be handled with your legal counsel and compliance consultancy.

Can a new owner or controller act as the SMF16 or SMF17?

Only if that individual is approved to perform the function and is genuinely fit and proper and competent for it. In most cases a new controller is better served by appointing a credible, experienced SMF holder and demonstrating effective management and control through that appointment, rather than taking the function on personally.

Can you find candidates who have worked under a live VREQ before?

Yes. Our network includes compliance and MLRO professionals who have held SMF16 and SMF17 through live FCA supervisory situations, section 166 reviews and VREQ remediation — exactly the experience that gives a board and a regulator confidence at short notice.

Related Exec Capital resources

• SMF16 Head of Compliance Hiring Guide
• SMF17 MLRO Hiring Guide
• When a Firm Needs a Fractional MLRO
• SMF Roles: A Complete Guide
• Head of Compliance (SMF16) Recruitment
• MLRO (SMF17) Recruitment
• Interim Executive Recruitment
• FCA-Regulated Firm Recruitment Hub

This guide is general information about the senior-recruitment and interim-cover decision and does not constitute legal, compliance or regulatory advice. Decisions about a VREQ, a skilled-person review, regulatory notifications and the use of any temporary-cover provisions should be taken with your own legal counsel, compliance consultancy and skilled person.