SMF9 Chair of Governing Body Function: A Guide

The SMF9 Chair of Governing Body function designates the chair of the board at enhanced SMCR firms — bringing the individual who leads the governing body within the personal accountability framework of the Senior Managers Regime and requiring FCA approval before they can perform the role.

The chair of a regulated firm’s board occupies the highest governance position in the firm’s structure. Under the Senior Managers and Certification Regime, the chair of an enhanced SMCR firm’s governing body must hold the SMF9 function — making them personally accountable to the FCA for the adequacy of the firm’s governance. The SMF9 function is a non-executive function in most cases, though the specific arrangement depends on the firm’s governance structure and whether the chair has any executive responsibilities.

What Is the SMF9 Function?

The SMF9 function is defined in SUP 10C as the function of acting as the chair of the governing body of a firm. The “governing body” is the board of directors or equivalent — the body with ultimate oversight of the firm’s strategy, governance and accountability for its regulated activities.

The SMF9 function is specifically the chair of the firm’s principal governing body — not the chair of a board committee. Committee chairs have their own prescribed functions: SMF10 (Chair of the Audit Committee), SMF11 (Chair of the Risk Committee), SMF12 (Chair of the Remuneration Committee) and SMF13 (Chair of the Nominations Committee). An individual who chairs both the board and a committee holds the SMF9 function and the relevant committee chair function simultaneously.

Which Firms Must Designate SMF9?

The SMF9 function applies to enhanced SMCR firms. As with SMF3 and SMF5, core SMCR firms are not required to designate the chair as an SMF9 holder, though their chairs remain subject to the Certification Regime and Conduct Rules if they are not otherwise approved persons.

For dual-regulated firms — banks, building societies, insurers — the PRA’s Senior Managers Regime imposes equivalent or analogous requirements. In those cases, the chair may hold approved person status under both regimes. The obligations are broadly aligned but firms should confirm the precise requirements under each regulator’s framework, particularly for the form and content of the Statement of Responsibilities.

The Chair’s Governance Role Under SMCR

The SMF9 holder’s accountability under the SMCR focuses on the governance function rather than operational management. The chair is accountable for: the effectiveness of the board in overseeing the firm’s management; the quality of information provided to the board by executive management; the adequacy of the board’s challenge of executive decisions; the board’s oversight of the firm’s risk and compliance framework; and the governance arrangements through which the firm’s culture and values are set and maintained.

The chair is not accountable for the day-to-day management of the firm — that is the function of the CEO (SMF1) and other executive directors. The distinction between the chair’s governance accountability and the CEO’s management accountability is fundamental to how the SMCR allocates responsibility at board level. Where both functions are held by the same individual — a combined chair/CEO arrangement — the FCA expects this to be justified by reference to the firm’s specific circumstances and subject to additional safeguards to compensate for the loss of independent challenge.

The Chair’s Independence

The FCA’s governance expectations for enhanced SMCR firms include that the chair of the governing body is independent of executive management — meaning they do not have executive responsibilities within the firm and do not have relationships with the firm’s business that could compromise their objectivity. An independent chair is better placed to provide the kind of robust challenge to executive management that effective governance requires.

Independence is assessed on a substance-over-form basis. A chair who is nominally non-executive but who has a consulting relationship with the firm, significant equity stakes that create financial dependence on executive performance, or close personal relationships with executive directors, may not be truly independent in the FCA’s view. The firm’s governance documentation should address the chair’s independence explicitly and should note any relationships that could be perceived as compromising it.

Statement of Responsibilities for SMF9

The SMF9 holder’s Statement of Responsibilities must reflect the chair’s governance accountability and distinguish it clearly from the executive accountabilities of the CEO and other SMF holders. A well-drafted SoR for SMF9 typically covers: accountability for the effectiveness of the board’s governance processes; responsibility for ensuring the board receives accurate and timely information from management; accountability for board composition and succession planning; responsibility for the board’s oversight of risk and compliance; and accountability for the governance of the firm’s culture.

The SoR should not attribute to the SMF9 holder responsibilities that properly belong to executive SMF holders — for example, responsibility for specific operational functions or the day-to-day management of the compliance programme. The FCA’s enforcement focus in cases involving governance failures at regulated firms is on whether the relevant SMF holder’s SoR accurately reflected their responsibilities and whether they took reasonable steps within those responsibilities.

FCA Approval Process for SMF9

The approval process for SMF9 follows the standard Form A application procedure. The FCA’s assessment of a chair candidate focuses particularly on: their experience in board leadership at regulated firms; their understanding of the regulatory environment and the obligations of enhanced SMCR firms; their personal standing and ability to challenge executive management independently; and any adverse history — regulatory, financial or otherwise — that could affect their fitness and propriety.

The FCA is likely to examine the candidate’s track record as a board member or chair at previous regulated firms, including whether they were associated with any governance failures or regulatory interventions. A candidate with strong non-executive credentials in unregulated sectors may face more detailed questions about their understanding of FCA supervision and the SMCR accountability framework than one who has held SMF9 or equivalent functions at other regulated businesses.

Ongoing Obligations and the Reasonable Steps Standard

Once approved, the SMF9 holder is subject to the same reasonable steps obligation as all other senior managers. For a chair, this means demonstrating that they took adequate steps to ensure the board was operating effectively and providing genuine governance oversight of the firm’s management. This includes: ensuring the board received adequate information; ensuring the board’s challenge of management was genuine and documented; escalating concerns to the FCA where appropriate; and acting promptly where governance weaknesses were identified.

A chair who relies on management’s own assessment of the firm’s governance adequacy — without independent verification through internal audit, external review, or their own assessment — is unlikely to have satisfied the reasonable steps standard if a governance failure subsequently occurs. The FCA’s expectation is that the chair maintains an independent perspective on the firm’s governance health, not merely monitors management’s representations about it.

Key References

• • FCA Handbook SUP 10C — Senior Managers Regime for FCA-authorised firms
  • FCA — Senior Managers and Certification Regime
  • FCA FG20/1 — Guidance on the responsibilities of board members