SMF3: What the Executive Director Function Means at a Regulated Firm

At an FCA-regulated firm, sitting on the board is not the same as holding a board title at an unregulated company. An executive director of an authorised firm ordinarily holds SMF3 — the executive director function under the Senior Managers and Certification Regime — a governing Senior Management Function that carries personal regulatory accountability. For a board appointing an executive director, that changes who can be considered, how they are assessed, and what the firm must demonstrate before the appointment is complete.

This article explains what SMF3 is, how it fits among the other governing functions, and how a board should approach appointing an approvable executive director. Where a specialist search is the right route, Exec Capital runs executive director (FCA) mandates as retained, research-led searches led personally by the founder.

What SMF3 Is

SMF3 is the executive director function — a governing Senior Management Function held by an individual who is both a director of the firm and an executive within it. It captures board members who hold an executive role, as distinct from non-executive directors, who hold their own functions. The executive director sits on the governing body and shares in the board’s collective responsibility, while also carrying the accountability of an executive within the firm’s management.

Like every Senior Management Function, SMF3 is held by an approved person. The holder must be assessed as fit and proper, holds a Statement of Responsibilities setting out what they are accountable for, and is bound by the Conduct Rules and the Duty of Responsibility. The function is a recognition that an executive who also sits on the board carries both the governance accountability of a director and the management accountability of a senior executive — and that the regulator expects to be able to hold them responsible for both.

SMF Capital sets out the function in depth in its guide to the SMF3 executive director function, and runs dedicated SMF3 executive director recruitment; its complete SMF designations guide shows how the executive director function sits among the governing and required functions.

How SMF3 Differs From an Ordinary Board Seat

Personal accountability, not just collective responsibility

A director of an unregulated company shares in the board’s collective responsibility but does not carry a personal, regulator-enforced accountability for specific areas of the business. An SMF3 holder does. Their Statement of Responsibilities records what they are personally accountable for, and under the Duty of Responsibility they can be held to account where a breach occurs in an area for which they were responsible and they did not take reasonable steps. The board seat is real, but so is the individual accountability that comes with it. SMF Capital’s guide to the Duty of Responsibility and reasonable steps explains what the standard requires in practice, and its guide to the responsibilities map shows how a firm records who is accountable for what.

Fitness and propriety is assessed, not assumed

Before an SMF3 can be appointed, the firm must assess the individual as fit and proper — honesty and integrity, competence and capability, financial soundness — and be able to evidence it. The fit and proper test shapes who can realistically be shortlisted. A commercially impressive candidate who cannot be approved is no use to a regulated board.

Approval sits on the critical path

For a new SMF3 at an authorised firm, the individual must be approved by the regulator before taking up the function, and the firm submits the application with the Statement of Responsibilities. The appointment is not complete when the offer is accepted. Boards should plan the timetable around that reality rather than treating approval as a formality.

SMF3 or SMF18 — getting the designation right

A recurring question at the point of hire is whether a board executive should be approved under SMF3 or under SMF18, the ‘other overall responsibility’ function. The two are not interchangeable: SMF3 is for an individual who is a director of the firm, while SMF18 captures a senior individual with overall responsibility who does not sit on the board. Getting the designation right before the search begins matters, because it determines the Statement of Responsibilities, the regulatory application and the basis of assessment. Where the executive will not be a statutory director, the FCA recruitment brief should reflect that from the outset rather than defaulting to SMF3 by habit.

Where SMF3 Sits Among the Functions

The executive director function frequently overlaps with other governing functions. A finance director who sits on the board may hold both SMF3 and the chief finance function (SMF2); a chief operating officer on the board may hold SMF3 alongside an operations function. The chief executive (SMF1) is itself an executive on the board, holding the governing function appropriate to that role. What matters is that the firm is clear which functions each individual holds, because that determines the scope of their Statement of Responsibilities and the basis on which they are assessed.

• A board-level record appropriate to the firm’s scale, business model and regulatory status;
• The regulatory credibility to be assessed as fit and proper for a governing function;
• A clear understanding of the firm’s permissions, business model and regulatory obligations;
• Clarity on which functions the individual will hold where the executive role overlaps with another SMF;
• The judgement and temperament to discharge the Duty of Responsibility as both a director and an executive.

How to Run the Search

An executive director search at a regulated firm rewards a structured, research-led approach. The brief should be explicit about the firm’s regulatory status, the executive scope of the role, and which functions the appointee will hold, so candidates are assessed against the regulated dimension from the outset rather than screened for it afterwards. The strongest candidates are usually in post and are reached directly and confidentially.

Exec Capital runs these as retained searches. Briefing covers the firm’s regulatory status and the scope of the SMF3 role as well as the executive and board brief; research maps candidates with both the board-level record and the regulatory standing to hold the function; approach and assessment test both dimensions; and the shortlist carries assessment commentary that speaks to fitness and propriety. We support the firm through interviews, offer, the Statement of Responsibilities and the regulatory approval process.

Where the firm is building out its regulated board at the same time — appointing an executive director alongside a chief executive, a chief finance function or non-executive directors — we coordinate the searches so the board fits together and the allocation of functions is clear.

Frequently Asked Questions

Does every executive on a regulated board hold SMF3?

An executive who sits on the governing body of an authorised firm ordinarily holds the executive director function, unless they hold a different governing function that already captures their board role — the chief executive, for example, holds SMF1. The precise allocation depends on the firm’s SM&CR classification and governance structure.

Can one person hold SMF3 and another function?

Yes. It is common for an executive director to hold the executive director function alongside a functional one — the chief finance function, for instance. The firm records both in the individual’s Statement of Responsibilities, and the individual is assessed and accountable for both.

How long does an SMF3 appointment take?

Longer than an unregulated board appointment, because regulatory approval sits on the critical path. The search runs to a normal retained timetable; the additional time is the approval process once a candidate is selected. Boards should build that into their planning.

Sources and Further Reading

• FCA — Senior Managers and Certification Regime
• FCA Handbook — SUP 10C (FCA senior management functions)
• FCA — Approved persons and the Duty of Responsibility