FCA Senior Management Functions: A Guide to SMF Terminology
For firms operating in the UK financial services sector, appointing senior leaders involves more than finding someone with the right commercial experience. Certain senior roles are subject to the Senior Managers and Certification Regime (SM&CR) and, depending on the firm’s regulatory classification and the responsibilities of the role, may require FCA approval as a Senior Management Function (SMF).
Understanding the terminology used by the Financial Conduct Authority (FCA) is therefore important when defining a senior appointment, assessing candidates and planning a regulatory application. Read our Grok Post.
What is a Senior Management Function?
A Senior Management Function (SMF) is a controlled function performed by an individual who has responsibility for managing an aspect of a regulated firm’s affairs where there could be significant consequences for the firm or wider UK business interests.
The FCA describes SMFs as roles held by a firm’s most senior decision-makers, with key responsibilities for running the firm, protecting consumers and maintaining market integrity.
Individuals performing an SMF generally need to be approved by the FCA or, where applicable, the Prudential Regulation Authority (PRA) before they can begin the role.
What does SMF mean?
SMF stands for Senior Management Function.
It is a regulatory classification rather than simply a job title. A person might be described commercially as a Chief Executive Officer, Finance Director, Risk Director or Compliance Director, while their regulatory responsibilities may correspond to a particular SMF.
For example, the FCA Handbook identifies:
- SMF1 – Chief Executive Function
- SMF2 – Chief Finance Function
- SMF3 – Executive Director Function
- SMF4 – Chief Risk Function
- SMF5 – Head of Internal Audit Function
- SMF9 – Chair of the Governing Body Function
- SMF11 – Chair of the Audit Committee Function
- SMF12 – Chair of the Remuneration Committee Function
- SMF13 – Chair of the Nomination Committee Function
- SMF14 – Senior Independent Director Function
- SMF16 – Compliance Oversight Function
- SMF17 – Money Laundering Reporting Function
- SMF24 – Chief Operations Function.
The precise SMFs that apply depend on the type and regulatory classification of the firm.
SMF2 – Chief Finance Function
One particularly important designation for finance leadership is SMF2 – Chief Finance Function.
The terminology is relevant when a senior finance professional has responsibility that falls within the firm’s regulated governance arrangements.
However, businesses should not assume that every individual with the commercial title CFO, Finance Director or Financial Controller automatically performs SMF2.
The regulatory classification depends on the firm’s circumstances and the actual responsibilities attached to the position.
This distinction is important when recruiting senior finance professionals into FCA-regulated businesses.
SMF16 – Compliance Oversight
SMF16 – Compliance Oversight Function relates to the individual responsible for the firm’s compliance oversight arrangements.
This can be a particularly important appointment because the role sits at the intersection of regulatory requirements, governance, risk management and the firm’s internal control framework.
Candidates for senior compliance positions therefore need more than technical knowledge. Their experience needs to be considered against the responsibilities of the particular regulated firm and the requirements associated with the relevant function.
SMF17 – Money Laundering Reporting Function
The Money Laundering Reporting Officer (MLRO) role is another important FCA terminology point.
The relevant senior management designation is SMF17 – Money Laundering Reporting Function.
An MLRO is responsible for the firm’s arrangements relating to money laundering and terrorist financing risks and plays a significant role in the firm’s financial crime control framework.
When recruiting an MLRO, firms therefore need to consider both the individual’s technical financial crime experience and their suitability for the senior management responsibilities attached to the role.
What is a Statement of Responsibilities?
A key term within the SM&CR framework is the Statement of Responsibilities (SoR).
Every SMF holder must have a Statement of Responsibilities setting out clearly the areas for which they are responsible and accountable.
This makes the SoR an important part of senior leadership recruitment.
A candidate may have held a similar position elsewhere, but the responsibilities attached to the new role need to be clearly defined within the firm’s governance structure.
The FCA’s SMF application process can require information about the candidate’
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