What the FCA Expects From a First-Time SMF16 at a Newly Authorised Firm
Newly authorised firms often appoint a compliance officer who is taking on SMF16 for the first time, sometimes in the same month the firm starts trading. That can work well, but it is one of the combinations the FCA looks at most closely: a new firm with no track record and a Senior Manager with no track record in the role. This guide explains what the FCA expects, the first year’s priorities, and how to make a first-time appointment credible.
Why the First-Time SMF16 Gets Extra Scrutiny
When a firm applies for authorisation, the FCA must be satisfied that it meets the threshold conditions, including that it is suitable and has appropriate resources. The people named in the application are a large part of that assessment. For SMF16, the FCA also assesses the individual against the fit and proper test, including competence and capability for the role.
A first-time SMF16 is not a problem in itself. But the FCA will want to see why this person can run a compliance function from a standing start, without the established framework, team and history an existing firm would have. The application should answer that question before it is asked. Our guide to building an SMF team from scratch covers the wider team, and what is SMF16? covers the function.
What the FCA Looks For
- Relevant experience at the level below. A strong first-time SMF16 has usually run compliance monitoring, advised the business and dealt with the regulator as a deputy or senior compliance manager in a similar firm.
- Knowledge of the firm’s permissions. Detailed understanding of the rules that apply to the firm’s products and customers, not just the general framework.
- A realistic plan. A clear view of the compliance framework the firm needs, the monitoring plan for the first year and how the function will grow.
- Enough time. Whether the role is full-time or fractional, a credible time commitment for the firm’s risks.
- Independence and standing. Direct access to the board and the confidence to challenge the founders, who are often the firm’s majority owners.
- Support. Who the SMF16 can turn to: an experienced chair or non-executive, external advisers, or a more experienced compliance professional on call.
The FCA may interview SMF16 candidates as part of the application. Our guide to preparing for an approval interview covers what to expect.
The First Year’s Priorities
A newly authorised firm’s compliance function is built in its first year, and the first-time SMF16 is building it. The priorities are usually:
- Making the application real. Every policy, procedure and control described in the application must work in practice from day one. The FCA may test this early.
- The compliance monitoring plan. A risk-based plan approved by the board, and the first round of monitoring results. See the compliance monitoring plan template.
- Regulatory reporting. Knowing which returns are due and when, and making sure the first ones are right. See FCA regulatory reporting explained.
- Breaches and notifications. A breach log from the start, and clarity on what must be notified to the FCA.
- Consumer Duty and financial promotions. For retail firms, outcomes monitoring and promotions sign-off from the first customer.
- Training. Conduct Rules training for all staff, and certification for those in certification functions. See Conduct Rules training.
- The first annual compliance report. A frank account to the board of what has been built and what remains. See the annual compliance report.
Our guide to the first 90 days for a new compliance officer sets out the early weeks in more detail.
Making a First-Time Appointment Credible
Firms can strengthen a first-time SMF16 appointment in several ways:
- An experienced chair or non-executive with a regulatory background, who can support and challenge the SMF16.
- A fractional mentor or adviser. An experienced compliance officer engaged for a few days a month to review the framework and support the SMF16, without holding the function.
- A clear statement of responsibilities that matches the candidate’s experience. See the statement of responsibilities template.
- A realistic time commitment, and a budget for outsourced monitoring or file reviews where volumes justify it.
- A written development plan, showing how the SMF16 will close any gaps in their experience.
Alternatively, some firms appoint an experienced fractional compliance officer as SMF16 for the first year or two, with a more junior compliance manager who can step up later. That can be the stronger application, particularly for higher-risk firms.
Scenario: A new wealth management firm plans to appoint its senior compliance manager from a larger firm as its first SMF16. She has run monitoring and advised advisers for six years but has never held the function. The firm appoints an independent chair with a compliance background, engages an experienced fractional compliance officer for two days a month to review the framework, and sets out both arrangements in the application. The application proceeds without questions on the SMF16, and she leads the function from day one.
Why First-Time SMF16 Applications Struggle
From the applications we see, first-time SMF16 appointments at new firms run into trouble for a handful of reasons:
- The experience does not match the permissions. A candidate from a wholesale broker named as SMF16 for a retail lender, with no plan to close the gap.
- The time commitment is unrealistic. A part-time holder with several other roles, or a founder who is also chief executive.
- The compliance framework is generic. Policies copied from a template that do not describe how the firm will actually work.
- No support around the SMF16. No experienced chair, non-executive or adviser to turn to.
- A weak statement of responsibilities that does not explain what the SMF16 will actually own.
- Gaps in the candidate’s own history that were not explained in the Form A.
Each of these can be fixed before the application is submitted. Our guide to what goes wrong in Form A submissions covers the application itself, and pre-offer checks covers the candidate’s history.
For the Candidate
If you are considering your first SMF16 role at a newly authorised firm, do your own due diligence. Ask to see the application, the business plan, the compliance budget and your draft statement of responsibilities, and meet the board. Our guide to due diligence before you accept an SMF role sets out what to check, and the duty of responsibility explains what you will be accountable for. Live roles are on our compliance officer jobs page.
Related Services and Guides
The compliance officer behind a new authorisation. Every search is run by our specialist team, with Adrian Lawrence FCA overseeing each mandate
Authorisation
The team behind the application.
→ SMF authorisation support → Going directly authorisedBuilding an SMF team →
Compliance Officers
Permanent and fractional SMF16.
→ Compliance officer (SMF16) → Fractional compliance officerWhat is SMF16? →
Approval
Getting the SMF16 approved.
→ Form A pitfalls → Approval interviewsThe fit and proper test →
First Year
Building the function.
→ The first 90 days → Monitoring plan templateThe annual compliance report →
Every search is run by our specialist team, with Adrian Lawrence FCA overseeing each mandate
Frequently Asked Questions
Can a first-time SMF16 be approved at a newly authorised firm?
Yes. The FCA will want to see relevant experience at the level below, a realistic plan, enough time and appropriate support.
Will the FCA interview our SMF16 candidate?
It may. Prepare every SMF16 candidate for the possibility.
Should a new firm use a fractional SMF16?
Often it is a strong option for the first year or two, particularly for higher-risk firms, with a more junior compliance manager developing alongside.
What experience should a first-time SMF16 have?
Usually several years as a deputy or senior compliance manager in a firm with similar permissions, including running compliance monitoring, advising the business and dealing with the regulator.
Can the founder be the SMF16?
Sometimes, at a very small firm, but the FCA will question whether a founder who is also chief executive has the time and independence to oversee compliance effectively.
When should we appoint the SMF16?
Before the authorisation application is finalised, so they can help design the framework the application describes.
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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Adrian Lawrence FCA is the founder of SMF Capital and a Fellow of the Institute of Chartered Accountants in England and Wales and holds an ICAEW practising certificate in his own name. He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience working with boards, investors and business owners across the UK. He founded SMF Capital to help FCA and PRA-regulated firms appoint the Senior Managers the regulators expect, with the fit and proper assessment built into every search, and oversees every Senior Manager Function search.