The Senior Managers Regime: A Detailed UK Guide | FD Capital

Senior Manager Approval, Liability and Recruitment in FCA-Regulated Firms

The Senior Managers Regime is the most consequential pillar of the FCA’s Senior Managers and Certification Regime (SM&CR). It governs the appointment, conduct and personal accountability of the most senior individuals in every FCA-regulated firm — the Senior Management Function holders. For a firm, getting the Senior Managers Regime right is the foundation of credible regulatory governance. For an individual, holding a Senior Management Function is the most heavily regulated employment status in UK financial services — with personal liability that includes potential FCA enforcement action and criminal sanctions in narrow circumstances.

This guide explains how the Senior Managers Regime actually works in practice — what counts as a Senior Manager, how the FCA approval process operates, what personal liability looks like under the Duty of Responsibility, and how the regime interacts with the Certification Regime and Conduct Rules. It also covers what FD Capital looks for when placing SMF candidates, what hiring firms get wrong about the approval process and timeline, and the practical realities of operating as an SMF.

What’s missing from most online explanations is the recruitment and operational angle — how the FCA approval process actually feels, what experienced SMFs look for in firms before they accept appointment, and what “good” looks like in the day-to-day discipline of being an SMF. That’s the gap this guide fills.

What the Senior Managers Regime Is

The Senior Managers Regime is the framework that designates specific senior roles in an FCA-regulated firm as Senior Management Functions (SMFs) and requires the individuals holding those roles to be pre-approved by the FCA, to have a written Statement of Responsibilities filed with the FCA, and to operate under a specific accountability framework that includes personal liability for failures within their area of responsibility.

The regime applies to all FCA-regulated firms, with the specific list of required SMFs varying by the firm’s tier under SM&CR. Firms are categorised into three tiers based on size, complexity and activity profile:

The Enhanced threshold is reached at approximately £35bn AUM for asset managers, £50bn turnover for credit firms, IFPRU 730k investment firms above material size, and certain other specific tests. Most firms recruiting SMFs are Core-tier or Enhanced — Limited Scope firms typically have a single sole director holding all senior responsibility.

The 20+ Senior Management Functions

The full list of SMFs is set out in SUP 10C of the FCA Handbook. The most commonly recruited SMF roles for solo-regulated firms include:

• SMF1 — Chief Executive Function (the CEO)
• SMF2 — Chief Finance Function (the CFO/Finance Director — see our SMF2 guide)
• SMF3 — Executive Director (the function held by every executive director)
• SMF4 — Chief Risk Function (the CRO — see our SMF4 guide)
• SMF5 — Head of Internal Audit (Enhanced firms)
• SMF7 — Group Entity Senior Manager (where group entities have material influence)
• SMF9 — Chair of the Governing Body
• SMF10 — Chair of the Risk Committee
• SMF11 — Chair of the Audit Committee
• SMF12 — Chair of the Remuneration Committee
• SMF13 — Chair of the Nominations Committee (for some Enhanced firms)
• SMF14 — Senior Independent Director
• SMF16 — Compliance Oversight Function (Head of Compliance — see our SMF16 guide)
• SMF17 — MLRO (Money Laundering Reporting Officer — see our SMF17 guide)
• SMF18 — Other Overall Responsibility Function (Enhanced firms only — see our SMF18 guide)
• SMF22 — Other Local Responsibility Function (for certain branch offices of overseas firms)
• SMF24 — Chief Operations Function (Enhanced firms — see our SMF24 guide)
• SMF27 — Partner Function (for limited liability partnerships)
• SMF29 — Limited Scope Function (Limited Scope firms only)

Dual-regulated firms (banks, building societies, larger investment firms and insurers) operate under a parallel framework with PRA-designated SMFs alongside FCA SMFs, and the joint approval process is administratively more complex.

The FCA Approval Process — How It Actually Works

Before an individual can take up an SMF role, the firm must apply for FCA approval and the individual must be approved. The process is administered through the FCA’s Connect system and follows a structured timeline.

Step 1: Pre-application due diligence

The firm carries out its own Fit & Proper assessment of the candidate before applying. This includes verifying qualifications, checking employment history, taking up references (mandatory under the Regulatory References regime for prior regulated firm employment), and conducting credit checks and criminal record checks. The firm’s own assessment is documented and forms the basis of the application.

Step 2: Form A submission

The firm submits a Form A application via Connect. The Form A includes detailed information about the candidate’s experience, qualifications, criminal record (if any), regulatory history, financial position, and the role they will hold. The candidate’s draft Statement of Responsibilities is included with the application — for Enhanced firms, this is reflected in the firm’s Management Responsibilities Map (MRM). See our SoR & MRM guide for detail.

Step 3: FCA assessment

The FCA reviews the application against the Fit & Proper Test set out in the FIT module of the Handbook. The assessment covers honesty, integrity and reputation; competence and capability; and financial soundness. For straightforward applications — experienced candidates with clean records moving between similar roles — the assessment is typically administrative. For more complex applications, the FCA may request additional information, conduct interviews with the candidate (sometimes), or ask probing questions about specific aspects of the candidate’s history.

Step 4: Approval or refusal

The FCA’s stated service standard is 90 working days for Senior Manager applications. In practice:

• Straightforward applications (experienced candidate, clean record, well-prepared application): typically approved in 8-12 weeks
• Standard applications (some additional information requested): typically 12-16 weeks
• Complex applications (first-time SMF candidates, candidates with regulatory history, candidates moving from non-regulated to regulated context): typically 16-24 weeks
• Applications during heightened FCA supervisory pressure on the firm: extended timelines and potentially difficult outcomes

Step 5: Effective date and onboarding

The approval has an effective date — typically the date the candidate starts at the firm or a specified later date. Until the approval takes effect, the candidate cannot perform the SMF; firms that allow individuals to act in SMF capacity before approval is effective face significant regulatory exposure.

The recruitment timeline implications are important: from offer acceptance to FCA-approved start date typically takes 16-26 weeks (notice period plus FCA approval plus onboarding). Hiring boards that plan for shorter timelines either accept compromised candidates or face unfilled roles for extended periods.

The Duty of Responsibility — Personal Liability for SMFs

The defining feature of the Senior Managers Regime is the Duty of Responsibility set out in section 66B of the Financial Services and Markets Act 2000 (FSMA). The provision creates personal regulatory liability for SMFs in respect of contraventions of relevant requirements occurring in their area of responsibility.

The Duty of Responsibility test:

1. A relevant requirement contravention has occurred in the firm
2. The contravention occurred in an area for which the SMF was responsible (per their Statement of Responsibilities)
3. The SMF did not take such steps as a person in their position could reasonably be expected to take to prevent the contravention

If all three limbs are met, the FCA may take enforcement action against the SMF personally — including financial penalties, withdrawal of approval, prohibitions, and public censure. The standard is “reasonable steps” — not absolute prevention — and the burden of demonstrating reasonable steps is critical. See our Reasonable Steps Guide for detail on what this means in practice.

The Annual Fit & Proper Assessment

Once approved, an SMF must continue to be fit and proper. The firm is required to assess each SMF’s fit and proper status at least annually under the Certification Regime extended to SMFs. Material adverse changes — bankruptcy, regulatory findings, conduct issues — must be reported to the FCA promptly under SUP 15 notification rules.

The annual assessment typically includes:

• Refreshed background checks (criminal record, credit, regulatory history)
• Documented internal performance and conduct review
• Verification that there have been no material changes to the SMF’s status
• Board attestation (or similar senior governance attestation) of continuing fitness
• Filing of any required updates to the Statement of Responsibilities

Where an SMF is found no longer to be fit and proper, the firm must notify the FCA promptly and the SMF cannot continue in the role. In practice, most firms manage transitions cooperatively rather than through formal “no longer fit and proper” findings — but the option exists where conduct or fitness issues arise.

The Regulatory References Regime

SM&CR introduced a mandatory reference exchange between regulated firms. When a candidate moves between regulated firms, the new firm must request a Regulatory Reference covering at least the previous six years (longer in some cases). The previous firm must provide the reference in a prescribed format covering:

• Whether the individual was an SMF or certified person
• Any conduct rules breaches by the individual that the firm concluded had occurred
• Any disciplinary action taken against the individual related to fitness and propriety
• Whether the firm withdrew SMF approval or certification

The regime is designed to prevent “rolling bad apples” — where individuals with conduct issues at one firm move to another firm without the receiving firm knowing. References cannot be the subject of confidentiality clauses — settlement agreements between firms and departing employees cannot prevent disclosure of the matters specified in the regime.

For SMF recruitment specifically, the reference position is critical. Candidates with adverse references can still be recruited, but the firm must be able to demonstrate that it has properly considered the disclosed matters and concluded the candidate remains fit and proper. The FCA scrutinises these decisions during the approval process.

Senior Manager Conduct Rules — Tier 2

SMFs are subject to the four Senior Manager Conduct Rules (Tier 2) in addition to the five Individual Conduct Rules (Tier 1) that apply to all firm employees. The four Senior Manager rules are:

1. SC1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
2. SC2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
3. SC3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
4. SC4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

Senior Manager Conduct Rules breaches are themselves enforceable and carry the same civil sanctions as the Duty of Responsibility. See our Senior Manager Conduct Rules Guide for detailed treatment.

SMF Liability in Practice — What Triggers Enforcement Examination

FCA enforcement against SMFs has been a feature of the regime since its introduction in 2016 (for banks and dual-regulated firms) and 2019 (for solo-regulated firms). The pattern of enforcement examination typically involves:

• A material failure or contravention occurs in the firm
• The FCA’s investigation establishes the failure occurred in a specific SMF’s area
• The FCA examines whether the SMF took reasonable steps
• If reasonable steps cannot be demonstrated, enforcement action follows

The most enforcement-prominent areas in recent years have been: regulatory reporting failures (particularly persistent reporting issues), customer outcomes failures (including Consumer Duty-relevant matters), AML programme failures, financial crime systems failures, and significant operational incidents (particularly IT outages and cyber breaches). The pattern is consistent — where the failure is sustained and the SMF cannot demonstrate active oversight, escalation, and remediation, enforcement examination escalates.

Ceasing to Be an SMF — Notification Obligations

When an SMF leaves their role, the firm must notify the FCA via Form C within seven business days. The Form C includes the reason for departure — including specific reasons such as resignation, dismissal, retirement, or termination by mutual agreement. Where the departure is conduct-related, additional information is required.

The firm must also update the leaving SMF’s Statement of Responsibilities to show the cessation date, and either reallocate their responsibilities to another SMF immediately or apply for approval of a successor. Gaps in coverage of prescribed responsibilities are an area of regulatory exposure — Enhanced firms in particular need to plan transitions to avoid unallocated responsibilities.

For SMFs with combined responsibilities (e.g., combined SMF16/17), the leaving notification must specify which functions are ceasing and how each will be reallocated. Where a successor application is submitted simultaneously with departure notification, the timing alignment between leave date and successor approval needs careful management.

The Senior Managers Regime in Recruitment Practice

Drawing on FD Capital’s SMF placements over the past several years, three operational realities are worth being explicit about:

1. The candidate pool for any specific SMF role is genuinely small. For sector-specific roles (e.g., SMF17 in payments, SMF24 in asset management) the qualified candidate population is typically 30-100 named individuals nationally. This shapes how searches need to run — relationship-led, sector-specific, and conducted with care over candidate confidentiality.

2. Salary benchmarks for SMF roles carry a regulated-firm premium. Typically 20-30% above equivalent non-regulated leadership roles. Firms that benchmark against generic CFO/CRO/COO salary surveys consistently find their searches stalling.

3. The regulatory reference exchange has real teeth. Settlement agreements cannot mask conduct issues, prior board disagreements that escalated, or regulatory matters that were discussed during a candidate’s previous tenure. Candidates with material reference issues need to disclose them proactively early in process — discovery during reference check derails otherwise solid placements.

Common Pitfalls in Senior Managers Regime Implementation

Looking across our SMF mandates, the most common pitfalls firms encounter:

• Underestimating the timeline. Firms planning 8-10 weeks from offer to start frequently disappoint candidates and find their preferred candidates take competing offers with more realistic timelines
• Vague Statements of Responsibilities. SoRs that are insufficiently specific create ambiguity about accountability and signal to candidates that the firm has not done the governance work properly
• Inadequate succession planning. Allowing prescribed responsibilities to become unallocated during transitions is a regulatory exposure
• Treating SMF approval as administrative. The Form A application is a formal regulatory submission and the FCA’s assessment is genuine — applications that are poorly substantiated or inconsistent with the firm’s MRM frequently encounter additional information requests that extend timelines
• Not refreshing fit and proper assessments annually. The annual assessment is mandatory and the FCA expects firms to be able to evidence it on request

Further Reading and Authoritative Sources

For the FCA’s authoritative guidance on Senior Management Functions, see FCA Handbook SUP 10C. For the Fit & Proper Test, see the FIT module. For the Conduct Rules, see COCON. For the broader SM&CR framework, the FCA’s SM&CR landing page provides an accessible overview.

Related Guides: SMCR and SMF Functions

Part of FD Capital’s series of practical guides for FCA-regulated firms: SMCR — The Complete UK Guide | The Certification Regime — A Detailed Guide | Individual Conduct Rules (Tier 1) | Senior Manager Conduct Rules (Tier 2) | ‘Reasonable Steps’ Under SMCR | Statement of Responsibilities & MRM | SMF2 Guide | SMF4 Guide | SMF16 Guide | SMF17 Guide | SMF18 Guide | SMF24 Guide