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, what changed in the 2026 reforms, 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) recruitment as retained, research-led searches, carried out by our specialist team with Adrian Lawrence FCA overseeing each mandate.

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.

For solo-regulated firms, SMF3 applies to Core and Enhanced firms where the individual is a director on the board. Limited Scope firms have a narrower set of functions and do not use SMF3. At dual-regulated banks and insurers, the executive director function is designated by the FCA and sits alongside the PRA’s own functions. The detailed rules are in chapter SUP 10C of the FCA Handbook, which sets out each FCA-designated Senior Management Function and which firms it applies to.

In practice, SMF3 is most often held by executives whose main day job is something else: a finance director, a chief operating officer, a commercial or distribution director, or a founder who remains an executive. The function exists to capture the fact that they sit on the board. It does not replace the functional role, and it does not by itself say what the individual is responsible for — that is the job of the Statement of Responsibilities.

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.

That changes how good candidates behave in a search. An experienced executive will want to understand the firm’s compliance history, open regulatory issues, the quality of management information and how responsibilities are split across the board before they accept. A board that cannot answer those questions clearly will lose strong candidates late in the process.

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.

The firm’s own assessment comes first and the regulator’s comes second. That means criminal record checks, regulatory references from previous employers covering the last six years, credit checks and a properly documented view of the candidate’s competence for the specific role. Gaps or disclosures are not automatically fatal, but they need to be surfaced early and explained, not discovered after an offer has been made.

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. Our guide to how long FCA SMF approval takes sets out a realistic timeline from submission to decision.

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 brief should reflect that from the outset rather than defaulting to SMF3 by habit.

This area is moving. From 10 July 2026, SMF18 holders at solo-regulated firms may hold any Prescribed Responsibility, which gives Enhanced firms more flexibility over who carries what. The FCA’s Phase 2 consultation goes further and proposes deleting SMF18 altogether, which would mean reallocating any responsibilities it holds to other functions. That is a proposal, not a rule, but a board designing a new senior structure now should be aware of it.

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) — see our CFO recruitment service for that hire; 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.

Holding more than one function is normal, especially at smaller firms where the board is compact. Our guide on whether one person can hold more than one SMF covers the combinations that work and the ones the regulator is likely to question. When a board is assessing an SMF3 candidate, it should look for:

• 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.

The wider framework is set out in our comprehensive overview of the SMCR, which explains how governing functions, required functions and Prescribed Responsibilities fit together.

What Changed Recently for SMF3 Appointments

The first phase of the SMCR reforms took effect on 24 April 2026 through the FCA’s policy statement PS26/6. None of it changes what SMF3 is, but several changes affect how an executive director appointment is planned and run.

• The 12-week rule is now a submission deadline. Where a firm uses the 12-week allowance to cover an SMF role, it now has 12 weeks to submit the application rather than 12 weeks to secure approval, and the individual may continue to act while the application is determined. This takes some pressure off boards replacing an executive director at short notice, though the application still has to be complete and well prepared.
• Criminal record checks last longer. The validity period has been extended from three to six months, and a new check is no longer needed where an SMF holder moves internally or within the group. A longer search or a delayed submission is less likely to mean repeating the check.
• Regulatory references come back faster. Firms asked for a regulatory reference now have four weeks to respond rather than six. That helps the incoming firm, but it also means your own firm must answer requests about departing staff more quickly.

Separately, the FCA has set itself faster targets for authorisations. For senior manager applications, it aims to decide at least half in 35 days, and it has supported a proposed reduction in the statutory deadline from three months to two, as set out in its announcement on faster authorisation targets. These are targets and proposals rather than guarantees, and an incomplete or poorly evidenced application will still take longer. Boards should treat them as a reason to prepare thoroughly, not as a promise of a fixed timetable.

For a firm hiring an executive director, the practical effect is that the regulatory element is a little more predictable than it was. It does not remove it. The search, the firm’s own fitness and propriety work and the quality of the application remain the parts the board controls. Our article on the SMF3 brief for executive director appointments looks at how to scope the role before any of that begins.

What the Phase 2 Proposals Could Mean

On 22 October 2026 the FCA published CP26/37, its Phase 2 consultation on the SMCR, alongside a parallel PRA consultation for dual-regulated firms. The consultation closes on 22 January 2027 and the FCA expects to publish final rules in the first half of 2027. Everything in this section is proposed and may change.

The headline proposals include removing certain Senior Management Functions, making others notifiable rather than subject to pre-approval, removing the Certification Regime, raising the thresholds for the Enhanced regime, removing ongoing submissions of Statements of Responsibilities and Management Responsibilities Maps, and streamlining the Prescribed Responsibilities.

On the published commentary, SMF3 itself is not among the functions proposed to move to notification. Executive directors would still need pre-approval before taking up the role. The functions most widely reported as moving to notification are the committee chair roles and the head of internal audit, and SMF18 is proposed for deletion. Boards should check the final policy statement before relying on any of this.

Two proposals are worth watching for executive director hires. First, higher Enhanced thresholds would move some firms into the Core regime, which changes the set of functions around the board but not the need for an approved SMF3. Second, if the Certification Regime is removed, executives below board level would no longer be certified, which would put more weight on the senior managers who are approved — including executive directors.

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 executive director searches for FCA-regulated firms 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.

Practical points for the board

• Decide the designation first. Confirm whether the role is SMF3, or SMF3 combined with a functional SMF, before the brief goes out.
• Draft the Statement of Responsibilities early. A draft helps candidates understand what they will be accountable for and makes the application quicker to prepare.
• Start references and checks at offer stage. Regulatory references and criminal record checks take time, and problems are easier to handle before the candidate resigns from their current role.
• Plan for notice periods. Senior executives at regulated firms often have long notice periods, and that usually matters more to the timetable than the approval itself.
• Prepare the candidate for interview. The regulator may interview SMF candidates, particularly at larger firms. A candidate who knows the firm’s business model, risks and their own responsibilities will interview better.

Frequently Asked Questions

Does every executive on a regulated board hold SMF3?

An executive who sits on the governing body of an authorised Core or Enhanced 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 SMCR 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, plus the candidate’s notice period. Boards should build that into their planning.

Do Limited Scope firms need an SMF3?

No. Limited Scope firms have a narrower set of Senior Management Functions and the executive director function does not apply to them. If a firm’s classification changes, it should review which functions its directors need to hold.

Will SMF3 become a notification-only role?

Not on the current proposals. The Phase 2 consultation proposes moving some functions to notification, but SMF3 is not among those reported. The consultation closes on 22 January 2027, so firms should check the final rules when they are published.

Sources and Further Reading

• FCA — PS26/6: Senior Managers and Certification Regime review
• FCA — CP26/37: SM&CR Review, Phase 2
• FCA — Faster targets for authorisations
• FCA Handbook — SUP 10C (FCA senior management functions)
• Bank of England (PRA) — SMCR Phase 2 consultation