SMF1 Explained: What Changes When You Hire a CEO for a Regulated Firm

Hiring a chief executive is the most consequential appointment any business makes. At an FCA or PRA-regulated firm it is also a regulated one. The person you appoint does not simply take the title of CEO — they take on SMF1, the Chief Executive function under the Senior Managers and Certification Regime, and with it a set of personal, legally enforceable responsibilities that sit on the individual, not the company. For the board making the hire, that changes what the search is for, who can realistically be considered, and how long the appointment takes to complete.

This article sets out what SMF1 is, how the regulatory dimension reshapes a CEO search, and what a board should expect when it sets out to appoint one. It is written for founders, chairs and investors appointing a chief executive into an authorised firm for the first time, as well as for established boards planning a succession. Where a specialist search is the right route, Exec Capital runs CEO of a regulated firm mandates as retained, research-led searches led personally by the founder.

What SMF1 Is

SMF1 is the Chief Executive function — one of the governing Senior Management Functions set out by the FCA and PRA under the Senior Managers and Certification Regime (SM&CR). It is held by the individual with responsibility for the day-to-day running of the authorised firm, under the oversight of the governing body. In most firms that is the chief executive; in smaller firms the same person may hold several functions. What matters is that SMF1 is a regulated role an individual must be approved to hold before they take it up, not a job title the board is free to assign at will.

The holder of SMF1 is an approved person. They must be assessed as fit and proper, they hold a Statement of Responsibilities that records precisely what they are accountable for, and they are bound by the Conduct Rules and the Senior Managers’ Duty of Responsibility. Under that duty, a senior manager can be held personally accountable where a regulatory breach occurs in an area for which they were responsible and they did not take the steps a reasonable person in their position would have taken. That is the defining shift from an unregulated CEO role: accountability attaches to the person. SMF Capital’s guide to the Duty of Responsibility and reasonable steps sets out what that means in practice.

SMF Capital sets out the function in depth in its guide to the SMF1 chief executive function, and runs dedicated SMF1 regulated CEO recruitment; its complete SMF designations guide maps how the governing, required and oversight functions fit together across FCA and PRA firms.

Why a Regulated CEO Search Is Different

The candidate pool is narrower than it looks

The obvious candidates for a chief executive role — strong commercial operators with a track record of growth — are not automatically approvable. A regulated firm needs a CEO who can hold SMF1, which means someone the FCA or PRA will assess as fit and proper for a governing function at a firm of that type and scale. Regulatory experience, an understanding of the firm’s permissions, and a credible account of how they will discharge the Duty of Responsibility all matter. A candidate who has run a larger unregulated business is not necessarily a stronger candidate than one who has held a Senior Management Function at a smaller regulated one.

Fitness and propriety is assessed, not assumed

Before an SMF1 candidate can be appointed, the firm must satisfy itself — and be able to demonstrate to the regulator — that the individual is fit and proper. That assessment covers honesty and integrity, competence and capability, and financial soundness. SMF Capital sets out the test in full in its guide to the fit and proper test; the practical point for a board is that this diligence happens during the hire, not after it, and a search run without it in mind can produce a shortlist of people who cannot ultimately be approved.

Approval sits on the critical path

For a new SMF1 at an authorised firm, the appointment is not complete when the offer is accepted. The individual must be approved by the regulator before they take up the function, and the firm submits the application with the Statement of Responsibilities. The board should plan the timetable around that reality rather than treating approval as a formality at the end. Where an appointment is time-critical — an authorisation gateway, a departure that leaves the function vacant — Exec Capital’s urgent SMF appointment service is built for exactly that pressure.

What the Board Is Really Hiring

It helps to separate the two things a regulated CEO appointment is asking for. The first is the commercial and leadership capability any chief executive needs: strategy, judgement, the ability to build and lead a senior team, credibility with investors and customers. The second is the regulatory standing to hold SMF1: the fitness and propriety, the understanding of the firm’s obligations, and the temperament to own personal accountability for how the firm is run. The strongest appointments have both. The common failure is to assess only the first and discover the second too late.

• A commercial and strategic record appropriate to the firm’s stage and ambition;
• 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;
• The judgement and temperament to discharge the Duty of Responsibility rather than delegate it away;
• The standing to lead a senior team that may itself include other Senior Management Function holders.

At most authorised firms the SMF1 sits alongside other governing and required functions — a chief finance function (SMF2), a compliance oversight function and, where relevant, a money laundering reporting officer. A CEO who understands how those functions interlock, and who will hold them to account without absorbing their responsibilities, is worth considerably more to a regulated board than one who treats the regulatory architecture as someone else’s problem.

How to Run the Search

A regulated CEO search rewards a structured, research-led approach over an advertised one. The strongest candidates are usually in post and are reached directly and confidentially. The brief should be explicit from the outset about the regulatory dimension — the firm’s permissions, the functions the CEO will hold, the fitness-and-propriety bar — so that candidates are assessed against it rather than screened for it after the fact.

Exec Capital runs these as retained searches. The briefing covers the firm’s regulatory status and the scope of the SMF1 role as well as the commercial brief; research maps candidates with both the leadership 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 as well as capability. We then support the firm through interviews, offer, and the Statement of Responsibilities and regulatory approval process.

Where the firm is appointing other Senior Management Functions at the same time — a common pattern at authorisation or after a change of control — we coordinate the searches. Related functions include the executive director (SMF3) function, compliance oversight, and, at insurers, the specialist insurance SMFs.

Frequently Asked Questions

Does every CEO of a regulated firm hold SMF1?

At an authorised firm, the individual with responsibility for the firm’s day-to-day running under the governing body’s oversight holds the SMF1 Chief Executive function. The precise allocation of functions depends on the firm’s SM&CR classification and its chosen governance structure, which is confirmed as part of the firm’s regulatory arrangements.

Can we appoint a CEO who has never held a Senior Management Function?

Yes — a first-time SMF holder can be appointed and approved, provided the firm can demonstrate they are fit and proper for the function. What matters is the substance of their experience and their readiness to hold the role, not whether they have previously been an approved person. The assessment and the regulatory application need to account for it, which is where an experienced search partner and good advice matter.

How long does a regulated CEO appointment take?

Longer than an unregulated one, because regulatory approval sits on the critical path. The search itself runs to a normal retained timetable; the additional time is the approval process once a candidate is selected. Boards planning a succession should build that in; where the appointment is urgent, it should be managed deliberately rather than left to chance.

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