When to Hire Your First In-House Head of Compliance

From consultancy support to your own compliance leader

Most small FCA-regulated firms do not start with an in-house Head of Compliance. They come through authorisation with the help of a compliance consultancy, which drafts the policies, sets up the monitoring programme and, in many cases, provides the individual who holds the SMF16 Compliance Oversight function. For a young firm with limited volumes, that is often exactly the right model.

But the arrangement that works at authorisation rarely works for ever. As the firm grows, adds products and attracts more supervisory attention, the gap between what a consultancy provides and what the business needs tends to widen. Knowing when to make the move to your own compliance leader, and how to do it without a gap in accountability, is one of the more important decisions a regulated firm’s board makes.

This article sets out the signs that you have outgrown your consultancy, the options between full outsourcing and a full in-house team, how to handle the handover, and what to look for in your first in-house hire.

Why firms start with a consultancy

There are good reasons for the consultancy model in the early years. Authorisation is a specialist project, and consultancies that run many applications know what the FCA expects. A new firm may not have the volume to keep a full-time compliance professional busy. And a consultancy can bring a team (monitoring specialists, financial crime experts, financial promotions reviewers) that a small firm could never employ directly.

Where the consultancy provides your SMF16 or SMF17, remember that the senior management function is held by an individual, not by the consultancy. That person carries personal accountability under the Senior Managers and Certification Regime, and the firm remains responsible for its compliance arrangements. Our article on outsourcing the MLRO function explores where that model works well and where it comes under strain.

Eight signs you have outgrown your compliance consultancy

1. Your consultancy hours keep rising. When ad hoc advice, extra monitoring and regulatory change work push the annual bill towards the cost of a salaried professional, the economics have shifted.
2. The board needs challenge in the room. If compliance input arrives as a quarterly report rather than as live challenge in product, marketing and board discussions, the firm is missing something a consultant visiting periodically cannot provide.
3. Response times are slowing the business. When product launches, financial promotions or client onboarding wait days for consultancy sign-off, compliance has become a bottleneck.
4. Supervisory contact is increasing. More FCA correspondence, data requests or a supervisory visit usually means the firm needs a compliance leader who knows the business intimately. See our guide to preparing for an FCA supervisory visit.
5. The Consumer Duty is demanding more evidence. Outcome monitoring and the annual board assessment require data from across the business. An embedded compliance leader is better placed to build that evidence. See how the Consumer Duty has reshaped the SMF16 role.
6. You are adding permissions, products or markets. A variation of permission, a new lending product or a move into payments brings new rules and new risk that need continuous oversight.
7. A breach or near miss exposed a gap. If an issue was spotted late or handled slowly, it is worth asking whether an in-house leader would have caught it sooner.
8. Investors or acquirers are asking questions. Due diligence on a regulated business always looks at compliance leadership. A named, embedded Head of Compliance reassures investors in a way a consultancy contract often does not.

The options between full outsourcing and a full team

Moving from a consultancy does not have to mean jumping straight to a full-time Head of Compliance with a team beneath them. There are several stages in between.

Stage	What it looks like	When it fits
1. Full outsourcing	Consultancy provides the SMF holder and runs the programme	Authorisation and early operation
2. Fractional senior manager	A named senior professional holds SMF16 (and often SMF17) one to three days a week	Small firms that need continuity and board presence but not a full-time role
3. In-house leader, outsourced testing	A full-time Head of Compliance, with a consultancy carrying out monitoring or specialist reviews	Growing firms that want embedded leadership and independent testing
4. In-house leader and team	Head of Compliance, MLRO and compliance staff, with consultancy support only for specific projects	Established firms with significant volumes or retail exposure

For many firms, stage two is the natural first step. A fractional Head of Compliance gives the board a named senior manager embedded in the business at a fraction of the cost of a full-time hire, and the arrangement can scale up as the firm grows. Our article SMF16 and SMF17: one person or two? helps decide whether your first hire should cover both functions.

The cost comparison

The comparison is rarely as simple as consultancy fees versus a salary. On the consultancy side, include the retainer, the ad hoc work billed on top, and the internal time your team spends briefing the consultants. On the in-house side, include base salary, bonus, pension, employer’s National Insurance, training, systems and recruitment.

As a rough guide to the London market, a full-time Head of Compliance at a smaller firm typically commands a base salary between £90,000 and £150,000, and a combined Head of Compliance and MLRO somewhat more. A fractional senior manager working one day a week usually costs between £30,000 and £52,000 a year. Our compliance salary guide carries fuller benchmarks.

The less visible part of the comparison is risk. A compliance leader who is in the business every day is more likely to catch issues early, and the cost of one supervisory intervention or skilled person review can exceed several years of salary.

Managing the handover from your consultancy

The move from a consultancy to an in-house or fractional leader needs careful planning, particularly where the consultancy provides your SMF holder.

Secure the records. Make sure you will receive the compliance monitoring plan and results, the breach and complaints logs, regulatory correspondence, financial promotions approvals, training records and the firm-wide money laundering risk assessment. If the consultancy’s individual was your MLRO, you need the records of internal reports and decisions, handled securely.

Plan the senior manager change. If the consultancy’s individual holds SMF16 or SMF17, the firm will need to notify the FCA when they step down and apply for approval of the replacement. Form C must be submitted within seven business days of the individual ceasing to perform the function. The best approach is usually to have your new hire identified and the Form A application prepared before the consultancy’s individual steps down. If timing slips, the reformed 12-week rule may help; see our page on SMF16 and SMF17 temporary cover.

Overlap where you can. A short overlap between the consultancy and your new hire lets open issues, regulatory relationships and context transfer properly. Our article on senior manager handover best practice lists what a good handover should contain.

Allow for approval time. The statutory deadline for the FCA to decide a complete application is three months. See our guide to how long SMF approval takes.

What to look for in your first in-house Head of Compliance

A builder, not just a maintainer. Your first in-house hire will inherit a framework designed by someone else. They need the judgement to keep what works and the energy to rebuild what does not.

Breadth. In a small team, the Head of Compliance covers everything from monitoring to financial promotions to training. A narrow specialist from a large firm can struggle without a team beneath them.

Prior SMF experience, or a credible path to it. A candidate who has held SMF16 before will reassure the FCA and your board. A strong deputy stepping up for the first time can work, but expect closer scrutiny at interview. Our guide to FCA SMF interviews explains what to expect.

Sector fit. A lender needs consumer credit experience, a payments firm needs financial crime depth, and an advice firm needs suitability and Consumer Duty expertise. See our pages on consumer credit, payments and wealth management compliance recruitment.

Commercial credibility. The best first hires are those the CEO wants in the room, because they find compliant ways to get things done.

Common mistakes

• Hiring too junior. A compliance officer without the experience to hold SMF16 leaves the firm still dependent on a consultancy for senior accountability, at extra cost.
• Giving the title without the authority. A Head of Compliance who is not on the executive committee or invited to board meetings cannot provide real challenge.
• Cutting the consultancy too early. Independent testing and specialist support still add value after an in-house hire. Many firms keep a smaller consultancy arrangement for monitoring.
• Forgetting the MLRO. If the consultancy’s individual was also your MLRO, you need a plan for SMF17 as well as SMF16, and a deputy MLRO.
• Leaving it until a crisis. Recruiting under supervisory pressure narrows your options and your negotiating position.

Frequently asked questions

Can a consultancy hold our SMF16 function?

No firm can hold an SMF; an individual must. Consultancies often provide an individual who is approved as your SMF16, but that person carries personal accountability and the firm remains responsible for its compliance arrangements.

Should our first in-house hire be full-time?

Not necessarily. For many small firms a fractional Head of Compliance working one to three days a week is the right first step. See our page on fractional compliance officer recruitment.

Do we still need a consultancy once we have an in-house Head of Compliance?

Often, yes, for independent monitoring, specialist reviews or projects. The difference is that your in-house leader directs the work rather than relying on it.

How long does the transition take?

Allow for the recruitment itself, the candidate’s notice period and FCA approval. For a permanent hire, three to six months from start to finish is common; a fractional or interim appointment can be much quicker.