Group SMF Roles: When a Group Executive Needs Approval
In a group, the people who make decisions about a regulated subsidiary aren’t always employed by it. A group chief executive sets strategy, a group CFO controls capital, a group chief risk officer sets risk appetite. The question regulated firms in groups regularly face is: when do those group executives need regulatory approval as Senior Managers of the UK firm?
Getting it wrong either way causes problems. Too few approvals, and the regulator sees decisions being made by unaccountable people. Too many, and group executives take on personal accountability for a firm they don’t have time to oversee. This post sets out how to decide, and what it means for recruitment.
The Starting Principle
Under the Senior Managers and Certification Regime, Senior Manager Functions attach to the regulated firm, not to the group. If someone performs a Senior Manager Function in relation to the UK firm, they need approval for it, whoever employs them. Being a senior group executive doesn’t by itself require approval at the subsidiary, but exercising the relevant responsibilities for it does.
For dual-regulated firms, the Prudential Regulation Authority also has a specific Group Entity Senior Manager function for individuals employed elsewhere in the group who exercise significant influence over the regulated firm’s management. The detail is in the PRA Rulebook. Solo-regulated firms don’t have that function, so the question is whether the individual is performing one of the firm’s other functions.
A Decision Guide
| Question | If yes | If no |
|---|---|---|
| Is the individual a director of the UK regulated firm? | They may need approval, for example as SMF3 Executive Director or SMF9 Chair if executive or chairing | Go to the next question |
| Do they perform the role of chief executive, chief finance, chief risk, compliance oversight or MLRO for the UK firm? | They need approval for that function | Go to the next question |
| Do they take decisions about the UK firm’s business that no UK Senior Manager is accountable for? | Accountability gap: either they need approval, or a UK Senior Manager must take ownership | Go to the next question |
| At a dual-regulated firm, do they exercise significant influence over the firm’s management from elsewhere in the group? | Consider the PRA’s Group Entity Senior Manager function | Approval is probably not needed, but document why |
Where the answer isn’t clear, record the reasoning. Supervisors are more concerned by an unconsidered structure than by a considered judgement they might disagree with.
Worked Examples
| Situation | Likely position |
|---|---|
| Group CRO also acts as the UK firm’s chief risk officer | Needs approval as SMF4 at the UK firm where SMF4 applies |
| Group CFO sets group capital policy but the UK firm has its own finance director | UK finance director holds the UK accountability; group CFO may not need approval, but the relationship should be documented |
| Group CEO chairs the UK subsidiary’s board | Needs approval as SMF9 Chair |
| Group head of compliance oversees the UK compliance officer | The UK SMF16 holder remains accountable; group head may not need approval if not performing the UK function |
| Overseas parent executive approves the UK firm’s budget and major decisions directly | Risk of an accountability gap; consider approval or make sure a UK Senior Manager owns the decisions |
These are illustrations, not rules. The answer depends on the firm’s tier, its structure and what each person actually does. Our guides to SMF3 or SMF18 and SMF18 Other Overall Responsibility explain how those catch-all functions can apply.
The Recruitment Implications
Time
A group executive who takes on a Senior Manager Function at a UK subsidiary needs enough time to discharge it. The regulator will ask, and so should the firm. Where time is short, appointing a dedicated UK Senior Manager is often better.
UK Knowledge
Group executives from overseas parents may not know UK rules well. The approval application needs to show how they’ll get the knowledge, or why a UK-based Senior Manager should hold the function instead.
Conflicts
A group executive holding a UK function must be able to put the UK firm’s interests first where they conflict with the group’s, particularly over capital, dividends and intragroup charges.
Independent Challenge
Where several UK functions are held by group executives, adding an independent non-executive to the UK board, such as an independent chair or risk committee chair, provides challenge the regulator will look for. See chair and committee chair recruitment.
A US-headquartered group’s UK investment firm has its own managing director, but the US group CFO effectively approves all budgets and capital decisions. During a governance review, the board recognises an accountability gap. The firm appoints a UK finance director to hold the relevant UK responsibilities, documents how group decisions are made and challenged, and adds an independent non-executive to the UK board. The group CFO doesn’t need approval, because the UK accountability is now clearly held locally.
Branches and Third Country Firms
UK branches of overseas firms work differently. A third country branch has a Head of Third Country Branch function, so the regulators have a single accountable individual in the UK. If your firm operates through a branch rather than a subsidiary, our page on overseas firms and UK branches explains how branch Senior Managers are appointed.
Documenting the Structure
Group structure documentation
- A Responsibilities Map (at Enhanced firms) showing which group individuals hold UK functions
- Clear Statements of Responsibilities for each UK Senior Manager
- A record of how group decisions affecting the UK firm are made and challenged
- Reasoning for any group executive who influences the firm but doesn’t hold approval
- Management information specific to the UK firm, not just group reporting
- Intragroup service agreements for any functions provided by the group
Our guide to SMF approval for overseas firms and group structures covers the approval process in more detail, and a governance and SMF structure review can test whether your group arrangements hold up.
Fractional and Shared Senior Managers in Groups
Some groups use one individual to hold the same function, such as compliance oversight or MLRO, at several regulated subsidiaries. That can work well, bringing consistency and efficiency, provided the individual has enough time for each firm, understands each firm’s business and can manage conflicts between them. Each firm’s regulator will assess the arrangement separately, so the application for each needs to explain the individual’s other roles and how their time will be split.
When to Review the Position
Group structures change: a new parent after an acquisition, a restructure of group functions, a change in who chairs the subsidiary. Each is a moment to revisit who needs approval. It’s much easier to plan a new approval before a change takes effect than to explain afterwards why someone was performing a function without one.
Group Structures and Senior Managers
Services and guides for regulated firms within groups. Every SMF search is led personally by Adrian Lawrence FCA
Groups
Approval in group and overseas structures.
→ SMF approval for group structures
→ Overseas firms and UK branches
Board
Independent challenge in subsidiaries.
→ Chair and committee chairs
→ Regulated CEO (SMF1)
Transactions
When structures change.
→ Keeping the SMF team after a deal
→ Multi-SMF team build
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
Does a group chief executive always need approval at the UK subsidiary?
No. Only if they perform a Senior Manager Function in relation to the UK firm, such as chairing its board or acting as its chief executive.
What is the Group Entity Senior Manager function?
A PRA function for dual-regulated firms, covering individuals elsewhere in the group who exercise significant influence over the firm’s management.
Can one person hold functions at several group companies?
Yes, if each firm’s regulator approves and the individual has enough time and can manage conflicts between the firms.
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 leads every SMF Capital search personally, including UK Senior Manager appointments for subsidiaries of international groups. View Adrian’s ICAEW profile.
Unsure Who in Your Group Needs Approval?
Talk to us about your structure. We can help you identify where a UK Senior Manager is needed and recruit for the role.
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 personally leads every Senior Manager Function search.
