The most senior people in a firm who perform key roles (Senior Management Functions or SMFs) need FCA or PRA approval before starting their roles. See how the Senior Managers Regime applies to your firm.
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Every SMF must have a 'Statement of Responsibilities' (SoR) that clearly states what they are responsible and accountable for.
We make particular functions SMFs so that we know who a firm’s most senior decision makers are and to make sure firms clearly allocate responsibilities to those key individuals.
Every SMF holder will have a Duty of Responsibility under the Financial Services and Markets Act 2000 (FSMA). This means that if a firm breaches one of our requirements, the SMF responsible for that area could be held accountable if they did not take reasonable steps to prevent or stop the breach.
SMFs must be fit and proper to do their jobs and firms need to assess their ongoing fitness and propriety at least annually. Please see our Fitness & Propriety page for more details.
For information about applications to be an SMF, please see our approved persons page.
The SM&CR applies differently to solo- and dual-regulated firms.
Solo-regulated firms
The SM&CR was extended to include solo-regulated firms (firms regulated only by the FCA) in December 2019. Solo-regulated firms fall into one of three categories:
- Enhanced
- Core
- Limited Scope
A firm’s category determines how the Senior Managers Regime applies to it (e.g. which SMFs or prescribed responsibilities apply). Firms that fall into the Core category are subject to a standard set of requirements under the SM&CR. If a firm falls within the Enhanced category it will be subject to additional requirements to reflect its greater size or complexity and potential impact on consumers. Limited Scope firms are subject to reduced requirements.
Firms are responsible for determining which category they fall into, based on the rules.
Find out more about categorisation for solo-regulated firms.
The SM&CR Guide for FCA solo-regulated firms is a summary of our rules and guidance on SM&CR. It gives an overview of how the SM&CR works for these firms.
We have also published guidance to help solo firms with producing Statements of Responsibilities and (for Enhanced firms) Responsibilities Maps.
Dual-regulated firms
The FCA and PRA each have their own SM&CR rules and so this section should be read in conjunction with SM&CR information on the Bank of England website.
The SM&CR has applied to the banking sector (including banks, building societies, credit unions, UK branches of foreign banks, and designated investment firms) from March 2016 and to insurers (including insurers and reinsurers, ISPVs, the Society of Lloyd’s, managing agents and UK branches of foreign insurers) from December 2018.
The type of firm (Capital Resources Requirement (CRR) firm, small CRR firm, credit union, Solvency II Insurer/Large Non-Directive Firm, ISPV/Small Run-off firm, branch) determines the extent to which the regime applies (e.g. which SMFs or prescribed responsibilities apply).
Candidates to hold most SMFs at dual-regulated firms need to be approved by the PRA, although FCA consent is required. However, if the application is for one of the functions below the FCA is solely responsible for approval:
- SMF3 Executive Director
- SMF13 Chair of Nominations Committee
- SMF15 Chair of With-profits Committee
- SMF16 Compliance Oversight Function
- SMF17 Money Laundering Reporting Function
- SMF18 Other Overall Responsibility Function
- SMF21 EEA Branch Senior Manager
- SMF22 Other Local Responsibility
- SMF23b Lloyd’s Conduct Risk Oversight Function (Lloyd’s only)
- SMF27 Partner function
Overlap rule
If a candidate is applying to hold an SMF which the PRA is responsible for approving, the candidate might be able to also act as a SMF3, SMF13, SMF15 or SMF27 without the need for separate approval. For details on this, please see our Handbook.
(See also the SM&CR Guide for Insurers, the PRA’s Strengthening Accountability pages and other SM&CR information provided on the Bank of England website.)
Important considerations for all firms
Fitness and Propriety
Firms are required to ensure that SMFs (as well as Certification Staff) are fit and proper on an ongoing basis (which must include an annual assessment).
For individuals applying to hold SMF roles, firms should be in a position to evidence how they satisfied themselves that candidates are fit and proper before they apply to the FCA/PRA. The regulators will also assess candidates’ fitness and propriety.
See our Handbook for further information on fitness and propriety assessments.
Regulatory references for SMF applicants
As part of the assessment of a potential SMF’s fitness and propriety, firms must undertake appropriate referencing going back 6 years. Firms are required to provide a regulatory reference to another firm if requested; the rules state the reference must be provided as soon as is reasonably practicable. The FCA expects that regulatory references should be provided within 6 weeks at most – however this is a limit and not a target, and in most cases, it would be reasonably practicable to provide a reference far sooner.
See SYSC 22 in the FCA handbook and pages 41-42 of our SM&CR Guide for solo-regulated firms for more information.
Criminal record checks for SMF applicants
As part of an SMF application, firms must undertake criminal records checks in order to assess the fitness and propriety of their candidate, via the Disclosure and Barring Service (in England and Wales), Disclosure Scotland (Scotland), or AccessNI (Northern Ireland).
If the candidate has spent time living and/or working in a foreign jurisdiction, firms should undertake foreign records checks. The Home Office provides information on how to obtain these checks.
Our rules do not require criminal records checks as part of the annual assessment of an SMF’s fitness and propriety, though firms may choose to do this.
Senior Manager Conduct Rules
The Individual Conduct Rules apply to almost all staff at firms, including SMFs. In addition, there are four Senior Manager Conduct Rules which apply to SMF holders:
- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
- 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.
- 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.
- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
Delegating Senior Management responsibility
SMFs can delegate to others – this is a necessity in larger firms. However, this does not reduce their accountability for what they delegate.
Senior Managers should ensure that any delegation is reasonable in itself, that the individuals to whom they have delegated are appropriate, for example with suitable skills, and they should retain an appropriate level of oversight (see DEPP 6.2.9E for guidance on what we consider to be reasonable steps in terms of delegation).
CEOs and Chairs
The CEO of a firm can also be the Chair, unless there is another rule that forbids it (for example, SYSC 4.3A.2). If one individual is to hold both, both SMF1 (Chief Executive) and SMF9 (Chair) should be applied for.
Governing bodies and Senior Management Functions
SMFs are not restricted to members of the governing body, though in smaller firms it would not be unusual for almost all SMFs to be members of the governing body. However, Compliance Oversight (SMF16) and Money Laundering Reporting Officer (SMF17) are examples of functions that are often held by individuals who are not members of the governing body.
Non-executive Directors who are not SMFs (Non-SMF NEDs)
Only certain NEDs are approved as SMFs under the SM&CR. Non-SMF NEDs are, however, still subject to the fit and proper requirements and regulatory reference rules.
The Individual Conduct Rules and Senior Manager Conduct Rule 4 (“You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice”) also apply to Non-SMF NEDs.
Compliance Oversight (SMF16)
All dual-regulated firms require an SMF16. For solo-regulated firms, whether a firm requires an SMF16 depends on the type of firm it is and the permissions it holds. See SYSC 1 Annex 1 and SUP 10C.6.1 in the FCA Handbook.
Prescribed responsibilities (PRs)
PRs are specific responsibilities defined in the FCA Handbook and PRA Rulebook that a firm must allocate among its SMFs. PRs are in addition to the inherent responsibilities of a SMF’s role. We prescribe these responsibilities to make sure that at each firm, SMFs are accountable for key conduct and prudential risks.
The specific PRs that need to be allocated will depend on a firm’s activities and, for solo-regulated firms, whether it is a Core or Enhanced firm (Limited Scope firms do not have PRs).
For further information please see:
- SYSC 24 in the FCA Handbook (for all firms)
- PRA Supervisory Statement 28/15 and the PRA Rulebook (for dual-regulated firms)