FCA Senior Managers Regime Guidance Clarifies SMF Approval, Accountability, and Fitness Requirements

Key Takeaways

• The FCA's updated Senior Managers Regime guidance restates that Senior Management Function (SMF) holders need regulatory approval before starting their roles, must have a Statement of Responsibilities, and carry a statutory Duty of Responsibility.
• Requirements differ by firm type (solo- or dual-regulated) and category, so compliance teams should confirm that their categorization, responsibility allocation, and fitness and propriety processes align with the guidance.
• Senior individuals face personal accountability if reasonable steps are not taken to prevent or stop breaches.

Deep Dive

The FCA's updated Senior Managers Regime guidance restates that Senior Management Function (SMF) holders need regulatory approval before starting their roles, must have a Statement of Responsibilities, and carry a statutory Duty of Responsibility. Requirements differ by firm type (solo- or dual-regulated) and category, so compliance teams should confirm that their categorization, responsibility allocation, and fitness and propriety processes align with the guidance. Senior individuals face personal accountability if reasonable steps are not taken to prevent or stop breaches.

This guidance consolidates existing SM&CR expectations rather than introducing a new rule. For compliance teams, it is a benchmark against which to test governance arrangements. Every SMF needs FCA or PRA approval before taking up the role and a Statement of Responsibilities setting out what the individual is accountable for. Under FSMA, each SMF also has a Duty of Responsibility, so an SMF could be held accountable for a firm breach in their area if they did not take reasonable steps to prevent or stop it. Documentation of those steps is therefore critical.

The regime applies differently by firm type. Solo-regulated firms (FCA only, brought into the regime in December 2019) fall into Enhanced, Core, or Limited Scope categories. The category determines which SMFs and prescribed responsibilities (PRs) apply, with Enhanced firms facing additional requirements such as Responsibilities Maps and Limited Scope firms having no PRs. Firms must determine their own category under the rules. Dual-regulated firms (banks since March 2016, insurers since December 2018) must follow both FCA and PRA rules. Most SMFs are approved by the PRA with FCA consent, but the FCA alone approves SMF3, SMF13, SMF15, SMF16, SMF17, SMF18, SMF21, SMF22, SMF23b, and SMF27. An overlap rule may allow some SMF3, SMF13, SMF15, or SMF27 roles to be held without separate approval.

Fitness and propriety is a major focus. Firms must assess SMFs and Certification Staff on an ongoing basis, including at least annually, and must be able to evidence their assessment before submitting an application. For applicants, firms must obtain regulatory references covering the previous 6 years. Firms asked for a reference must provide it as soon as reasonably practicable, and the FCA expects this within 6 weeks at most, as a limit rather than a target. Criminal records checks are required for SMF applications unless an exemption applies. They must be run through the Disclosure and Barring Service, Disclosure Scotland, or AccessNI, plus foreign checks where relevant. They are not required for the annual reassessment, though firms may choose to repeat them.

Recommended actions:
- Verify the firm's SM&CR category and which SMFs and PRs apply.
- Review Statements of Responsibilities, and Responsibilities Maps for Enhanced firms, for gaps or overlaps.
- Confirm that annual fitness and propriety assessments are documented.
- Test regulatory reference turnaround against the 6-week outer limit.
- Confirm the criminal records check process, including foreign checks.
- Review delegation arrangements to confirm oversight is retained and evidenced, since delegation does not reduce accountability.
- Confirm that Non-SMF NEDs are covered by the fit and proper, regulatory reference, Individual Conduct Rules, and Senior Manager Conduct Rule 4 requirements.
- Check whether the firm needs an SMF16, and whether combined CEO/Chair arrangements require both SMF1 and SMF9 applications.

Risk implications are mainly regulatory enforcement and personal liability. Weak allocation of responsibilities, poor delegation oversight, or inadequate fitness and propriety evidence could lead to supervisory findings, delayed or refused approvals, and enforcement action against both the firm and individual Senior Managers. Dual-regulated firms carry added complexity from coordinating FCA and PRA approvals and rules.

Source: Financial Conduct Authority