Which SMFs Apply at Which Firm Tier?
Not every Senior Manager Function applies to every regulated firm. For FCA solo-regulated firms, the Senior Managers and Certification Regime sorts firms into three tiers, Limited Scope, Core and Enhanced, and a firm’s tier decides which SMF designations it must have in place. This guide maps the designations to each tier, explains how tier is decided and what changes when a firm moves up, and sets out what it means for recruitment.
How Tier Is Decided
A firm’s tier is set by its regulatory permissions and the scale and nature of its activities, not by headcount alone.
- Core is the default for most solo-regulated firms: brokers, advisers, investment managers, consumer credit lenders, payments-related firms with FCA permissions, and many others.
- Enhanced applies to a small number of the largest and most complex solo-regulated firms. Firms become Enhanced if they meet thresholds such as being a significant IFPRU or SYSC firm, holding large amounts of client money or assets, having large total assets under management, having very high revenue from consumer credit, or being a large intermediary. The precise criteria are in the FCA Handbook.
- Limited Scope covers firms whose permissions are themselves limited, such as limited permission consumer credit firms, some insurance intermediaries whose main business is not financial services, sole traders and certain other categories named in the rules.
Dual-regulated firms, mainly banks, building societies and larger insurers, follow a separate set of rules from both the PRA and FCA. Our guide to PRA and FCA dual regulation covers those. The FCA’s own guide to the SMCR for solo-regulated firms is the official starting point, and the rules are in SUP 10C.
SMF Designations by Tier
| Designation | Limited Scope | Core | Enhanced |
|---|---|---|---|
| SMF1 Chief Executive | No | Yes, where the role exists | Yes |
| SMF2 Chief Finance | No | No | Yes |
| SMF3 Executive Director | No | Yes, for executive directors | Yes |
| SMF4 Chief Risk | No | No | Yes |
| SMF5 Head of Internal Audit | No | No | Yes |
| SMF7 Group Entity Senior Manager | No | No | Where relevant |
| SMF9 Chair of the Governing Body | No | Yes, where there is a chair | Yes |
| SMF10 and SMF11 Risk and Audit Committee Chairs | No | No | Where the committees exist |
| SMF12 Remuneration Committee Chair | No | No | Where the committee exists |
| SMF13 Nomination Committee Chair | No | No | Where the committee exists |
| SMF14 Senior Independent Director | No | No | Where the role exists |
| SMF16 Compliance Oversight | Most Limited Scope firms | Yes | Yes |
| SMF17 Money Laundering Reporting | Where the money laundering rules apply | Yes, where the money laundering rules apply | Yes |
| SMF18 Other Overall Responsibility | No | No | Where an area has no other SMF |
| SMF24 Chief Operations | No | No | Yes |
| SMF27 Partner | No | Partnerships only | Partnerships only |
| SMF29 Limited Scope Function | Yes | No | No |
The table is a general guide. Limited permission consumer credit firms usually need only SMF29, and sole traders with no employees usually need only SMF16, so firms should always check their own permissions against the rules rather than relying on a summary. Firms near a tier boundary in particular should confirm their exact position. Our complete guide to SMF designations explains each function in detail.
Core Firms: The Roles That Matter Most
For most Core firms the essential Senior Managers are a chief executive (SMF1), any executive directors (SMF3), a chair if the firm has one (SMF9), a compliance officer (SMF16) and an MLRO (SMF17). At smaller Core firms the compliance officer and MLRO are often the same person, and many work on a part-time basis. These are the roles we recruit for most often:
- Regulated CEO recruitment (SMF1) and executive director recruitment (SMF3)
- Combined compliance officer and MLRO recruitment, or separate compliance officer (SMF16) and MLRO (SMF17) searches
- Part-time compliance officers and MLROs for smaller firms
Core firms do not need a separate chief finance (SMF2) or chief risk (SMF4) Senior Manager, but many still employ a finance director or head of risk. Those people are usually within the Certification Regime rather than approved Senior Managers. See the Certification Regime explained.
Limited Scope Firms Still Need to Take This Seriously
Limited Scope firms carry a lighter burden, but lighter doesn’t mean absent. The firm still needs individuals who are properly assessed as fit and proper for the functions it does have, and the Conduct Rules still apply to its staff. Some firms assume Limited Scope status exempts them from individual accountability entirely; it doesn’t. Our sister practice FD Capital has a practical guide to what the SMCR means for Limited Scope firms.
Enhanced Firms: What Changes
Enhanced firms have the Core functions plus a fuller set of executive and board roles: chief finance (SMF2), chief risk (SMF4), head of internal audit (SMF5), chief operations (SMF24), and committee chairs and a Senior Independent Director where those roles exist. They also have extra obligations:
- a Responsibilities Map showing how responsibility is allocated across the firm;
- handover procedures when a Senior Manager leaves;
- the overall responsibility requirement, so every business area and function has a Senior Manager accountable for it; and
- a wider set of Prescribed Responsibilities to allocate.
What Happens When a Firm Moves Between Tiers
Growth can move a firm from Core to Enhanced as it crosses the thresholds. It is one of the most consequential transitions a regulated firm goes through, because several new designations become required almost at once: typically SMF2, SMF4, SMF5 and SMF24, and potentially committee chairs and a Senior Independent Director if the board structure expands. The firm must also produce its first Responsibilities Map.
Firms that see the transition coming have a real advantage. The smoothest transitions start planning six to twelve months before the threshold is expected, because each appointment takes months from search to approval. Our guide to how long an SMF appointment takes sets out a realistic timeline, and our multi-SMF team build service runs the searches as one coordinated programme. See also becoming an Enhanced firm.
Scenario: A discretionary investment manager’s assets under management are growing towards the Enhanced threshold. Its Core structure has a chief executive, two executive directors, a chair and a combined compliance officer and MLRO. Planning a year ahead, the board recruits a Chief Risk Officer first, then a finance director who can be approved as SMF2, appoints an existing executive as SMF24, sets up audit and risk committees with independent chairs, and splits the compliance and MLRO roles. By the time the firm crosses the threshold, every function is approved and the Responsibilities Map is in place.
What This Means for Recruitment
Before specifying any SMF search, confirm the firm’s current tier and whether a transition is on the horizon. It decides which designations the firm actually needs and shapes the profile of each hire. A Core firm’s compliance officer may need to cover monitoring, financial promotions and Consumer Duty alone; an Enhanced firm’s may lead a team and report to a risk committee. We confirm tier requirements at the start of every search, and where a firm is unsure, our governance and SMF structure review answers the question before any recruitment starts.
Recruiting for Your Firm’s Tier
The right Senior Managers for the tier you’re in, and the one you’re heading for. Every SMF search is overseen by Adrian Lawrence FCA
Core Firm Roles
The roles almost every firm needs.
→ Regulated CEO (SMF1) → Compliance officer and MLROSMF16 and SMF17 explained →
Enhanced Firm Roles
What the transition adds.
→ Chief Risk Officer (SMF4) → CFO (SMF2)Becoming an Enhanced firm →
Board Roles
Chairs and committee chairs.
→ Chair and committee chairs → Multi-SMF team buildSMF9 explained →
Structure and Documents
Getting accountability right.
→ Governance review → Responsibilities Map templateSMF designations guide →
Every SMF search is overseen by Adrian Lawrence FCA
Frequently Asked Questions
Do Core firms need a Chief Financial Officer approved as SMF2?
No. SMF2 applies to Enhanced firms. A Core firm’s finance director is usually within the Certification Regime unless they are also an executive director (SMF3).
Does every firm need a compliance officer?
Almost every Core and Enhanced firm needs an SMF16 holder, and most Limited Scope firms do too. Limited permission consumer credit firms are the main exception.
Who decides whether a firm is Enhanced?
The firm assesses itself against the FCA’s criteria and must notify the FCA when it becomes Enhanced. Firms can also opt up to Enhanced voluntarily.
How long does a firm have to comply after becoming Enhanced?
The FCA’s rules allow a transitional period, but approvals take months, so firms should plan well before they expect to cross the threshold.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He oversees every SMF Capital search. View Adrian’s ICAEW profile.
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