Hiring an SMF3 Executive Director: A Complete Guide

SMF3 is the FCA designation that attaches personal regulatory accountability to Executive Directors who sit on the Board of an FCA-regulated firm but are not the CEO. In Core firms — particularly mid-sized asset managers, wealth managers, brokers and intermediaries — SMF3 is often the second-most-senior executive on the Board: the COO who attends as an executive director, the CFO who has been allocated to the Board with SMF3 (where they do not also hold SMF2 finance accountability), the Chief Commercial Officer with executive Board membership, or the founder-director in firms where the founder is not in the SMF1 seat. The role sits at the intersection of executive responsibility and Board accountability — and the SMF3 designation is the regulatory recognition that the individual carries personal accountability for the prescribed responsibilities allocated to them.

This guide is written for chairs, CEOs and nomination committees working through the appointment of an Executive Director into an FCA-regulated firm. It sets out what an SMF3 appointment actually involves: how the role differs from a corporate executive director, where it sits among the broader SMF set, how the Statement of Responsibility is structured, how the FCA approval process works, how to think about the candidate pool, and how the boundary between SMF3 and the executive functions (SMF1, SMF4, SMF24) needs to be drafted. It draws on our work running SMF mandates across asset management, wealth management, insurance, brokerage, fintech and consumer credit firms — and on the FCA’s published guidance on senior management functions for solo-regulated firms. For the broader SMF picture, see our SMF Roles guide; for the SMF1 CEO appointment that typically sits alongside SMF3 on the executive Board, our SMF1 CEO hiring guide.

What SMF3 covers

SMF3 is the Executive Director function under the Senior Managers and Certification Regime. It applies to individuals who sit on the Board of an FCA-regulated firm as executive directors but who do not hold the SMF1 (CEO) function. Like other prescribed senior management functions, SMF3 must be held by an FCA-approved individual where the function exists at the firm; any change in the SMF3 holder triggers a regulatory notification and approval process.

The substantive scope of SMF3 covers the dual nature of the role — executive responsibility for a defined area of the firm (operations, finance, commercial, technology, depending on the individual’s executive remit) combined with Board membership and the corresponding governance accountability. The regulatory dimension under SMCR layers personal accountability over both halves: the SMF3 holder is accountable to the regulator both for their executive area of responsibility and for their contribution to the Board’s oversight of the firm.

One specific point worth being explicit about. SMF3 applies where the firm has executive directors on the Board who are not the CEO. In firms where the only executive on the Board is the CEO (a structure common in some Limited Scope firms and smaller Core firms), SMF3 may not be in scope at all. In firms with multiple executives on the Board — typical for mid-sized Core firms and Enhanced firms — each executive director other than the CEO will hold an SMF3 designation alongside any other SMF function their executive role carries.

It is also worth being clear that SMF3 is the Board membership designation specifically. An executive who runs operations and sits on the executive committee but does not sit on the Board does not need SMF3 — they may hold SMF24 (if their role is the Chief Operations Function) or another executive SMF, but the Board membership designation only attaches when they actually attend the Board as a director.

How SMF3 differs from SMF1 — and why both are needed

The relationship between SMF1 (CEO) and SMF3 (Executive Director) is one of the structural distinctions that boards new to SMCR sometimes find confusing. Both are executive functions on the Board. Both are FCA-approved senior management functions. The difference matters for how Statements of Responsibility are drafted and how accountability operates in practice.

SMF1 sits with the CEO and carries overall executive accountability for the firm. The Statement of Responsibility for SMF1 is comprehensive, covers the prescribed responsibilities allocated to the CEO by default, and the SMF1 holder is the senior individual the FCA looks to first when reviewing how the firm is run.

SMF3 sits with other executive directors and carries accountability for the specific executive area each individual runs, plus Board-level accountability for the matters allocated to them in their Statement of Responsibility. The SMF3 holder is not subordinate to the SMF1 in the regulatory sense — both hold their own personal accountability under the regime — but the executive reporting line typically runs from SMF3 to SMF1 in the firm’s day-to-day operation.

For example, in a typical mid-sized regulated firm:

• The CEO holds SMF1 and has overall accountability for the firm
• The COO holds SMF3 plus SMF24 — SMF3 for their Board membership, SMF24 for their executive accountability for the operational function
• The CFO may hold SMF3 plus SMF2 (where SMF2 applies) — SMF3 for their Board membership, SMF2 for their finance function accountability
• Other executive directors on the Board (Chief Commercial Officer, Chief Investment Officer in some firm types) typically hold SMF3 alone unless their executive role corresponds to another designated SMF

This stacking of designations is normal under SMCR. A senior executive on the Board may hold two or three SMF designations simultaneously, with each carrying its own personal accountability and its own contribution to the responsibilities map. The Statement of Responsibility for that individual will cover all the SMFs they hold, and the FCA approval process treats the appointment as approval for each function the individual will perform.

What an SMF3 Executive Director does that a corporate executive director does not

The substantive role of any executive director — Board contribution, strategic input, peer relationships with the Chair and other Board members, accountability for their executive area — is broadly familiar from corporate governance more widely. SMCR layers regulatory accountability over the role and adds several specific dimensions a corporate executive director would not encounter.

Personal accountability to the regulator. The SMF3 holder’s Statement of Responsibility allocates specific accountabilities to the role — typically including their executive area of responsibility, their Board contribution on matters relevant to that area, and any prescribed responsibilities allocated to them rather than to the SMF1. When the FCA reviews how the firm has handled a matter that falls within the SMF3’s territory, the SMF3 holder is the senior individual whose accountability they look at.

The relationship with the FCA in their executive area. SMF3 holders may be the firm’s principal point of contact with the FCA on matters specific to their executive remit — particularly during firm visits, thematic reviews, or supervisory engagement focused on their area. A COO holding SMF3 plus SMF24 may engage with the FCA on operational resilience matters; a CFO holding SMF3 plus SMF2 may engage on financial reporting and capital matters. Strong SMF3 candidates have direct experience of FCA engagement at this level.

Board contribution on regulatory matters. SMF3 holders contribute to the Board’s discussion of regulatory and conduct matters — Consumer Duty implementation, operational resilience self-assessment, conduct culture, supervisory engagement. They are expected to bring substantive challenge to executive proposals on these topics, not just to support the management line. This expectation is more demanding than for a typical corporate executive director.

The reasonable steps test in their executive area. When something goes wrong in the firm in an area falling within an SMF3’s responsibility, the FCA’s first analytical question is whether the SMF3 took reasonable steps in their area. The test applies on both halves of the role — the executive area and the Board contribution — though the specific application differs between the two.

Conduct culture accountability. The FCA increasingly expects executive directors to be able to articulate how the firm’s conduct culture is shaped within their area of responsibility, what they have done to reinforce it, and what they would do if they identified weakness. This is not a soft topic — culture is treated as a leading indicator of conduct outcomes, and the SMF3’s contribution to culture in their area is part of the supervisory expectation.

Who typically holds SMF3

The population of SMF3 holders varies by firm type and structure. Five common patterns are worth describing because they shape how SMF3 specifications and searches are framed.

The COO who holds SMF3 plus SMF24. In firms where the COO is on the Board as an executive director, the individual will typically hold both designations. SMF24 covers their executive accountability for the Chief Operations Function; SMF3 covers their Board membership. The two designations stack: the Statement of Responsibility covers both, and FCA approval covers both. This is the most common SMF3 holder pattern in mid-sized regulated firms.

The CFO who holds SMF3 plus SMF2. Where the CFO sits on the Board and holds the Chief Finance Function designation (SMF2), the SMF3 designation attaches to their Board membership. In firms where the CFO does not sit on the Board (a structure that is permitted but increasingly uncommon for material regulated firms), only SMF2 applies. In firms where the CFO sits on the Board but does not hold SMF2 because the role is below the SMF2 threshold for the firm’s classification, only SMF3 applies. The combination depends on firm classification and the specific finance function structure.

The Chief Commercial Officer or Head of Sales who is on the Board. In some firms — particularly asset management and wealth management firms where commercial leadership is a Board-level role — the senior commercial executive sits on the Board as an executive director and holds SMF3. The individual is unlikely to hold any other SMF (commercial leadership is not itself a designated function in most firm classifications), so SMF3 stands alone for them.

The Chief Investment Officer in asset management firms. Asset management firms often have a Chief Investment Officer on the Board as an executive director. The CIO will typically hold SMF3 for the Board membership; depending on the firm’s structure and classification, they may also hold other designations such as SMF6 (Head of Key Business Area) where the CIO leads a discrete business unit.

The founder or non-CEO executive shareholder. In firms with a founder who is not the current CEO but who remains an executive director on the Board — or with significant shareholder representatives who hold executive roles — the individual will hold SMF3 alongside any other SMF designation their executive role carries. This pattern is common in PE-backed regulated firms and in founder-led businesses where succession has involved bringing in a CEO while the founder remains on the Board.

Building the SMF3 role specification

The role specification for an SMF3 search depends on the executive role the individual will hold alongside their Board membership. The substantive specification covers the executive role; the SMF3 dimension is layered on top with the regulatory requirements and the Board contribution expectations.

The executive role specification covers the standard content for the relevant executive function — what the individual will run, what their team looks like, what they are expected to deliver, how they fit on the executive committee, and how their compensation is structured. For each of the patterns above (COO + SMF24, CFO + SMF2, Chief Commercial Officer, CIO, founder-director), this part of the specification differs significantly.

The SMF3 dimension covers the Board membership specifically — the Board’s composition, how often the Board meets, what the executive director’s expected contribution is on matters beyond their immediate executive area, what committee membership they are expected to take (Risk Committee, Audit Committee, Remuneration Committee depending on firm structure and classification), and the relationship with the Chair and other Board members.

The regulatory dimension covers the SMF3 designation and any other SMF designations the individual will hold, the prescribed responsibilities allocated to the role, the firm’s classification under SMCR, the FCA supervisory category, and the regulatory priorities the firm is currently working on. Specifications that handle both the executive role and the SMF3 dimension explicitly attract candidates who are seriously engaged with the regulated dimension; specifications that gloss over the SMF3 dimension attract candidates who may be excellent commercially but who will struggle with the regulatory expectations.

One specific point: SMF3 specifications should always include a draft Statement of Responsibility that covers all the SMF designations the individual will hold. For a candidate moving into a COO + SMF24 + SMF3 role, the SoR needs to address all three designations clearly — not just SMF24 with SMF3 treated as a procedural overlay.

The FCA approval process for SMF3

Once the firm has selected its preferred candidate, the FCA approval process begins. The mechanics are similar to other SMF approvals — and we cover the detailed mechanics in the SMF1 CEO hiring guide — but several aspects of SMF3 approval are worth flagging specifically.

The submission is built around Form A, supported by the candidate’s Statement of Responsibility, the firm’s Management Responsibilities Map, regulatory references covering the candidate’s previous six years of regulated employment, and supporting evidence on competence and capability. The FCA’s published service standard for Form A turnaround is up to three months for SMF approval, with most clean SMF3 applications resolved within four to ten weeks.

For SMF3 specifically, three aspects of the approval pathway are worth understanding.

Where SMF3 stacks with another designation, the approval covers all functions. Where the candidate is being approved for SMF3 plus SMF24 (a common COO appointment) or SMF3 plus SMF2 (a common CFO appointment), the Form A covers all designations and the FCA’s assessment evaluates the candidate’s competence and capability for each. The combined approval can sometimes take slightly longer than a single-function approval because the assessment is broader, but the process is unified rather than sequential.

The competence and capability assessment focuses on the executive area. For SMF3 alone (without a stacked executive function), the FCA’s competence assessment focuses on the candidate’s substantive executive expertise — their ability to perform the executive role they will hold while also contributing effectively at Board level. Where SMF3 stacks with another designation, the competence assessment for the stacked function is the more substantive part of the review.

Independence assessment is less prominent for SMF3 than for SMF14. SMF3 is an executive function — the holder is not expected to be independent of management in the way an SMF14 SID is. The FCA’s assessment focuses on competence, capability, integrity, and the appropriateness of the candidate for the executive role they will hold. Independence questions arise only in specific circumstances such as significant shareholder interests that could create conflicts.

The fit-and-proper assessment for SMF3

The fit-and-proper assessment for SMF3 covers the same three statutory criteria as for any senior management function: honesty, integrity and reputation; competence and capability; and financial soundness. The application of these criteria to the SMF3 role has some specific dimensions.

Honesty, integrity and reputation is examined with attention to the candidate’s track record on Board contribution and on their conduct as a senior executive. References from previous Chairs, previous CEOs, and previous Board peers are particularly useful for triangulating how the candidate has operated as an executive director. Anything in the candidate’s history that requires explanation — regulatory matters, conduct findings, dismissals — should be disclosed proactively; the regulatory references will surface it regardless.

Competence and capability for SMF3 is assessed against the executive role the candidate will hold. The bar varies depending on what the executive role is: for a CFO + SMF2 + SMF3 candidate, the competence assessment looks at finance leadership credentials and CFO experience; for a COO + SMF24 + SMF3 candidate, it looks at operational leadership and operational resilience experience. The SMF3 dimension itself adds an expectation that the candidate has Board-level experience or has been genuinely prepared for it through senior executive committee contribution at peer firms.

Financial soundness covers the candidate’s personal financial position. Same bar as for other SMF roles — anything significant must be disclosed, explainable and not indicative of broader integrity concerns.

One specific dimension that comes up in SMF3 assessments: the candidate’s understanding of Board governance versus management. Strong candidates can articulate the difference clearly — that the Board is the firm’s primary oversight body and that executive directors operate in a different capacity at the Board than they do in their day-to-day executive role. Candidates who treat Board meetings as extensions of executive committee discussions can sometimes find this surfaces during reference checks or FCA interviews.

The Statement of Responsibility for an SMF3 Executive Director

The Statement of Responsibility for an SMF3 holder typically combines the SMF3 dimension with whatever other SMF designations the individual holds. The exact structure depends on the executive role.

For an SMF3-only holder (an executive director without another stacked SMF function), the SoR will typically include:

• The executive area of responsibility — what the individual is accountable for as an executive of the firm
• Board contribution and governance — how the individual contributes to the Board’s discussions and decisions, particularly on matters relating to their executive area
• Allocation of any prescribed responsibilities that fall to the SMF3 by virtue of the firm’s responsibilities map
• Committee membership on Board committees where applicable (Risk Committee, Audit Committee, Remuneration Committee)
• Engagement with the FCA on matters within the executive area

For an SMF3 stacked with another executive SMF (SMF2, SMF4, SMF24), the SoR will additionally cover the prescribed responsibilities for that other function. The structure should be clear about which accountabilities arise from which designation, so the FCA and any future supervisor can identify the specific basis for any matter that arises.

Three drafting points are worth flagging for SMF3 SoRs.

The boundary between Board accountability and management accountability needs to be clear. The SMF3 holder operates differently at the Board than they do as a member of the executive committee. The SoR should make clear what the individual’s Board-level accountabilities are versus their management-level accountabilities, particularly in areas where both apply.

Where SMF3 stacks with another function, the boundary needs to be clear. A COO + SMF24 + SMF3 holder has executive accountability under SMF24 and Board accountability under SMF3. The SoR needs to articulate both clearly so neither is treated as subordinate to the other.

The relationship with the SMF1 CEO needs to be reflected. The SMF3 holder reports to the SMF1 in the executive line, but at Board level both are peers contributing to the Board’s work. The SoR should not create reporting confusion or compromise the SMF3’s ability to challenge the executive line at Board level when needed.

Building the candidate pool for SMF3

The SMF3 candidate pool varies significantly by the executive role attached to the SMF3 designation. Three broad pools are worth describing.

Senior executives at peer regulated firms. The most common SMF3 candidate is a senior executive at another regulated firm of similar classification — a COO at a Core firm moving to an SMF3 + SMF24 role at a peer firm, or a CFO at a Core firm moving to an SMF3 + SMF2 role at another. These candidates have lived under SMCR, hold relevant prior approvals, and bring direct sector experience. The pool is reasonable in size — broader than for SMF1 — but discreet introduction is still the standard search method.

Below-Board executives at larger regulated firms. A common step-up pool: senior executives at Enhanced firms or larger Core firms whose roles do not currently include Board membership but whose seniority justifies it at a smaller firm. Heads of operations stepping up to COO + SMF3, Heads of finance stepping up to CFO + SMF3, senior commercial leaders moving to executive director roles. The candidate brings depth of experience without prior Board-level exposure; the firm gains an executive who is well prepared for the executive role with the SMF3 dimension as the additional development opportunity.

Corporate executives without prior SMF approval. Senior executives from non-regulated firms — particularly from financial services-adjacent industries — can be credible SMF3 candidates with structured preparation. The most common pattern is a corporate COO or CFO from a financial technology firm, payments business or insurance company moving into a regulated firm role. The FCA’s competence assessment will probe the regulated dimension carefully, and the firm will typically need to put in place structured FCA induction and sponsorship from existing SMF holders to support the appointment.

One specific note on candidate availability. SMF3 candidates with prior FCA approval are typically not actively seeking moves — they have lived in the regulated environment, understand its demands, and tend to move when they choose to rather than when external pressure arises. Searches that engage candidates 12-18 months before they intend to move see better outcomes than searches that begin only when the firm urgently needs to fill the role.

Compensation, indemnity and the personal accountability dimension

SMF3 compensation in UK regulated firms typically reflects the executive role attached to the SMF3 designation. A COO + SMF24 + SMF3 holder receives compensation reflecting the COO role; a CFO + SMF2 + SMF3 holder receives compensation reflecting the CFO role. The SMF3 designation itself does not carry an additional fee or compensation premium — the personal accountability dimension is treated as part of the senior executive role rather than as a separate compensation consideration.

Performance metrics for SMF3 holders typically combine commercial performance for the executive area with the broader firm-level metrics that apply to all executive directors. Where the SMF3 holder is a COO or CFO with stacked designations, the compensation structure incorporates the metrics appropriate to that executive role (operational metrics for COO; financial metrics for CFO) alongside the broader executive director contribution. Strong SMF3 packages avoid creating perverse incentives that conflict with the regulatory dimension of the role — particularly in conduct-sensitive areas.

Insurance and indemnity arrangements are an important part of any SMF3 offer. The Executive Director’s personal accountability under the regime — covering both the executive area and the Board contribution — means the candidate is exposed to potential FCA action against them as an individual on either dimension. Most regulated firms maintain D&O insurance and SMF-specific cover that addresses both halves of the SMF3 role. The strength of this cover is a real consideration for candidates and should be discussed during offer rather than after acceptance.

The reasonable steps test for SMF3 applies in two distinct contexts. In the executive context, the test applies to the individual’s executive area of responsibility — the same shape as for SMF24, SMF4 or SMF2 depending on what the executive role is. In the Board context, the test applies more narrowly to the SMF3’s contribution to the Board’s discharge of its responsibilities. The split matters because the evidence required to demonstrate reasonable steps differs between the two contexts.

Common SMF3 search pitfalls

Several patterns recur in SMF3 searches that go off-track. Each is avoidable with deliberate planning at the start.

Treating SMF3 as a procedural overlay. Boards that brief the SMF3 dimension as a regulatory formality on top of the executive role attract candidates who treat it the same way and who may not engage seriously with the regulatory expectations. The fix is to brief the SMF3 dimension substantively — the personal accountability, the prescribed responsibilities, the Board contribution expectations — alongside the executive role specification.

Drafting one Statement of Responsibility for the executive role and another for SMF3. Where SMF3 stacks with another SMF function, the Statement of Responsibility needs to be a single integrated document covering both. Splitting the SoR into two documents creates confusion about how the two designations relate and risks gaps or duplication that the FCA will probe during approval.

Underspecifying the boundary with SMF1. The CEO has overall accountability for the firm; the SMF3 holder has accountability for their executive area and their Board contribution. Specifications and SoRs that do not address this boundary explicitly create governance ambiguity — particularly where the SMF1 and SMF3 disagree on a matter within the SMF3’s executive area.

Underestimating the FCA timeline for stacked approvals. Where the candidate is being approved for SMF3 plus another executive SMF, the approval can take slightly longer than for a single function. Boards that have not factored this into their planning sometimes end up with regulatory gaps or compromises on the strongest candidate.

Treating Board contribution as an extension of executive committee discussions. Strong SMF3 candidates understand that the Board operates differently from the executive committee — different cadence, different governance role, different relationship with the Chair and NEDs. Specifications that present the SMF3 role as “executive committee membership plus Board attendance” miss this dimension and attract candidates who may struggle at Board level.

Not engaging the Chair in the SMF3 search. The Chair runs the Board, and the SMF3 holder is part of the Board’s executive contingent. Searches that do not actively involve the Chair in candidate evaluation can start the relationship between the SMF3 and the Chair on the wrong footing. The fix is to involve the Chair throughout the search, while recognising that SMF3 is fundamentally an executive appointment reporting to the CEO.

How Exec Capital approaches SMF3 mandates

Exec Capital runs SMF3 mandates as integrated executive-and-regulatory searches. The substantive executive dimension — appropriate to the specific executive role attached to the SMF3 designation — receives the same rigour we bring to any C-suite or senior director-level search. The SMF3 dimension is built in from the brief, not added at the end. We work through the Statement of Responsibility with the firm to ensure all SMF designations the candidate will hold are addressed clearly, identify the candidate pool with relevant prior SMF experience first, and structure the timeline around the realistic FCA approval window.

Our regulated-firm practice covers the full set of senior appointments under SMCR — SMF1 CEO, SMF3 Executive Director, SMF4 CRO, SMF5 Head of Internal Audit, SMF24 Chief Operations Function, SMF9 Chair and SMF14 SID — alongside the senior C-suite, director-level and specialist roles that operate within regulated firms. Where the appointment falls within a sister firm’s specialism — finance and compliance functions including SMF2, SMF16 and SMF17 (FD Capital), or wider non-executive appointments outside the SMF designation specifically (NED Capital) — we make the introduction directly and work alongside the relevant team.

For boards beginning Executive Director succession, refreshing how they approach previous SMF3 searches, or running their first SMF3 appointment, we offer a structured initial conversation that walks through the responsibilities map, the role specification and the realistic candidate pool before any formal mandate begins. For more on the broader SMF cluster, see our SMF Roles guide. For the related executive functions, our SMF1 CEO hiring guide, SMF24 Chief Operations Function hiring guide and SMF4 CRO hiring guide set out how those functions stack with SMF3 in different firm structures.

Further Reading and Authoritative Sources

For the FCA’s authoritative guidance on the SMCR and the SMF3 designation, see the FCA’s SMCR overview and the solo-regulated firms guidance. The FCA’s Form A guidance sets out the application requirements for SMF appointments.

For the broader regulatory framework that affects SMF3 holders’ Board contribution, see the FCA’s Consumer Duty and the Operational Resilience policy, both of which create Board-level responsibilities that executive directors contribute to. The Bank of England Supervisory Statement on individual accountability covers the dual-regulated firm context for firms that are both FCA and PRA regulated.

For corporate governance frameworks that complement the SMCR on Board roles, see the UK Corporate Governance Code published by the Financial Reporting Council. The Institute of Directors publishes governance guidance particularly relevant to Board effectiveness, the executive director role, and the Chair-Board relationship.