Senior manager handover: best practice when SMFs leave

Senior manager handover: best practice when SMFs leave

When a Senior Manager leaves an FCA-regulated firm, the event triggers a series of regulatory and governance obligations that go significantly beyond a standard employment notice period and handover. The departing senior manager must be withdrawn from their FCA designation; their responsibilities must be formally reallocated to other approved individuals or to a newly recruited replacement; and the governance transition must be documented in a way that demonstrates continuity of accountability rather than a gap. Done poorly, an SMF departure creates regulatory exposure for the firm, personal regulatory risk for both the departing individual and those who assume their responsibilities, and the kind of governance breakdown that attracts FCA supervisory attention.

The regulatory notification obligations

When a Senior Manager leaves the firm, the firm must notify the FCA promptly. For firms regulated under the Senior Managers and Certification Regime, this means submitting a Form C — the approved person withdrawal notification — within the required timeframe. The FCA expects notification of a senior manager’s departure as soon as the firm becomes aware that the individual will be leaving, not when their last day of employment occurs. A firm that delays notifying the FCA of an SMF departure until after the individual has left has failed to meet its regulatory notification obligations.

Where the departing individual held Prescribed Responsibilities, those responsibilities must be reallocated to another named Senior Manager and the reallocation must be notified to the FCA through an updated management responsibilities map. The updated map should identify who holds each responsibility following the departure and confirm that no Prescribed Responsibility is unallocated. A firm that has all Prescribed Responsibilities allocated to a single senior manager who then leaves has, unless it acts promptly, a governance gap across all of those responsibilities.

The FCA’s expectations on the timing of notification have become more stringent as SMCR has matured. The FCA supervisory team that receives a Form C withdrawal notification several weeks after the senior manager’s departure will ask questions about what arrangements were in place in the interim and who was exercising the relevant governance responsibilities during the gap. A satisfactory answer requires the firm to have had an interim arrangement — formally documented and notified — not simply to have operated without a designated senior manager in that function.

The handover documentation requirement

The most important output of a well-managed SMF departure is the handover documentation. This is the record of the outgoing senior manager’s function — the decisions they made, the issues they were aware of, the open regulatory matters they were managing, the state of the firm’s controls in their area — that enables the incoming senior manager or interim arrangement to continue the governance of that area without a break in continuity.

The FCA does not prescribe a specific format for SMF handover documentation, but its expectations in supervisory assessments are clear: the handover should give the incoming senior manager sufficient information to discharge the function effectively from their first day of responsibility. A handover document that is so high-level as to be uninformative — or that describes how things should work without acknowledging known issues and open items — is inadequate.

Effective SMF handover documentation typically includes: a description of the function’s scope as currently understood, cross-referenced to the individual’s Statement of Responsibilities; a summary of the key governance processes the function oversees — the committee structure, the management information framework, the reporting lines; a log of open regulatory matters — any outstanding FCA requests for information, any pending notification obligations, any skilled person reviews in progress; a summary of known control issues or open remediation items in the function’s area; a description of the key external relationships — FCA supervisor contacts, major third-party provider relationships, auditor relationships; and a briefing on the firm’s most immediate priorities in the function’s area.

The departing senior manager’s obligations

The departing senior manager is not simply a passive participant in the handover process. Under the SMCR framework, their obligations run to the FCA as well as to their employer. A senior manager who leaves the firm without providing an adequate handover — who withholds information about known issues, who fails to disclose open regulatory matters, or who departs in a way that creates a governance gap — is potentially in breach of their regulatory obligations.

This is a point that departing senior managers sometimes underestimate, particularly where the departure is acrimonious. The employment relationship between the firm and the individual may have broken down, but the individual’s regulatory obligations continue until the FCA formally removes their approved person status. The conduct rules — specifically the requirement to act with due skill, care and diligence and to be open and cooperative with the FCA — apply throughout the notice period and during the formal handover period.

A senior manager who believes the firm has handled their departure improperly, or who has compliance concerns about the firm’s conduct, has regulatory channels available to them — including the FCA’s whistleblowing regime. What they cannot do is simply disengage from their regulatory obligations because the employment relationship has deteriorated. Firms need to understand this when managing difficult SMF departures: attempts to expedite a departure in ways that prevent an adequate handover create personal regulatory risk for the firm, not just the departing individual.

Interim arrangements and bridge coverage

Where the departing senior manager’s function cannot immediately be transferred to an existing approved person in the firm — because the firm needs to recruit externally or because the internal candidate requires FCA approval before assuming the function — the firm must establish an interim arrangement. This interim arrangement must itself be formally documented and notified to the FCA where appropriate.

An interim arrangement typically takes one of three forms. The function can be temporarily allocated to another existing Senior Manager as an additional responsibility, provided they have the capacity and expertise to discharge it. This requires the interim holder’s Statement of Responsibilities to be updated to reflect the additional responsibility, and may require FCA notification depending on the firm’s size and the nature of the function. Alternatively, the firm can appoint an interim external hire — typically through a specialist recruitment firm — who can assume the SMF designation on an interim basis while the permanent appointment is made. Or the function can be managed through a governance bridge arrangement where the departing individual remains in an advisory capacity beyond their formal employment end date under a consulting arrangement, though this creates its own regulatory complications and should be handled carefully.

The choice of interim arrangement should be driven by the regulatory sensitivity of the function. An SMF16 Compliance Oversight function that is temporarily held by the CEO because no one else is available creates a concentration of regulatory accountability that the FCA will note, particularly in a firm that has experienced compliance issues. An SMF2 function held by a senior controller who is not themselves FCA-approved creates an accountability gap. Firms should not underestimate the FCA’s interest in the quality of interim arrangements for senior manager functions.

The Statement of Responsibilities during transition

The Statement of Responsibilities for the departing senior manager must be updated to remove the responsibilities they no longer hold, effective from the date of their departure. The Statements of Responsibilities for the individuals who assume those responsibilities must be updated to include them. Both updates should be completed and documented as at the date of the transition — not retrospectively after the fact.

A common failure in SMF departure management is the failure to update Statements of Responsibilities promptly. Firms complete the FCA withdrawal notification for the departing individual but do not update the receiving individuals’ Statements of Responsibilities, leaving a period where the management responsibilities map and the individual Statements are inconsistent. This inconsistency will be identified in any supervisory review and raises questions about the quality of the firm’s SMCR governance generally.

What the FCA looks for in a post-departure review

When the FCA engages with a firm following an SMF departure — whether through a routine supervisory visit or through a specific inquiry about the transition — it will typically assess four things. First, whether the notification obligations were met promptly. Second, whether an adequate handover was completed and documented before the individual left. Third, whether the interim arrangements, if any, were appropriate to the sensitivity of the function. Fourth, whether the successor or interim arrangement demonstrates that the governance of the function has been maintained without a meaningful break in accountability.

A firm that can produce the handover documentation, the updated management responsibilities map, the updated Statements of Responsibilities, and evidence that the incoming individual engaged substantively with the outgoing individual’s briefing is demonstrating the governance discipline the FCA expects. A firm that cannot produce these documents — or can only produce them in an incomplete or retrospectively created form — is demonstrating governance weakness that the FCA will factor into its assessment of the firm’s senior management regime.

FD Capital has significant experience placing interim and permanent replacements for departing SMF holders in FCA-regulated firms. The combination of regulatory knowledge and professional network that an ICAEW-registered recruitment practice provides means that when a firm faces an SMF departure, the search for a qualified replacement can begin immediately — reducing the period of interim arrangement and the associated governance risk.

Related Guides

• SMCR: A Complete UK Guide
• Allocating Prescribed Responsibilities by Firm Type
• SMF2 vs CFO: When the FCA Function Differs from the Title
• Career Paths to SMF16: Positioning for Compliance Oversight
• SMF16 — Compliance Oversight Function Guide