Going Directly Authorised: The Senior Managers You’ll Need
Many advice, mortgage, insurance and investment businesses start life as appointed representatives, operating under a network or principal’s FCA permissions. As they grow, many decide to become directly authorised. It brings independence, control over the proposition and often lower costs, but it also means the firm must stand on its own in front of the regulator, with its own Senior Managers, compliance oversight and money laundering reporting.
SMF Capital helps firms leaving a network build the senior team the FCA expects to see. This page sets out who you’ll need, when, and how to get them approved.
What Changes When You Leave the Network
As an appointed representative, your principal is responsible for your regulated activities under the rules in SUP 12. It usually provides compliance monitoring, file checking, training and competence oversight, financial crime controls and regulatory reporting. Your directors aren’t approved as Senior Managers at your firm, because the accountability sits with the principal.
Once you apply for your own permissions under the Financial Services and Markets Act 2000, all of that moves in-house. The FCA will assess whether your firm meets the threshold conditions, including having appropriate resources and being run by suitable people, and the people named as Senior Managers in your application are central to that assessment. The FCA has six months to decide a complete application, and up to twelve months for an incomplete one.
The Senior Manager Functions You’ll Usually Need
Most firms leaving a network become Core firms under the Senior Managers regime. Typically that means:
| Function | Who usually holds it | Notes |
|---|---|---|
| SMF1 Chief Executive or SMF3 Executive Director | The founder or managing director | Directors who will run the firm need approval. Our page on regulated CEO recruitment covers SMF1 |
| SMF9 Chair | The chair, if the firm has one | Not needed at every small firm |
| SMF16 Compliance Oversight | An in-house or fractional compliance officer | Replaces the compliance support the network provided |
| SMF17 MLRO | Often the same person as SMF16 at smaller firms | Needed where the firm is subject to the Money Laundering Regulations |
| SMF27 Partner | Partners in an LLP or partnership | Where the firm is structured as a partnership |
Every Senior Manager needs FCA approval, a Statement of Responsibilities and must meet the fit and proper test. Directors who advise clients also need to keep their RDR qualifications and Statement of Professional Standing. See RDR-qualified Senior Managers.
The Biggest Gap: Compliance and MLRO
For most firms leaving a network, the hardest part isn’t the directors. It’s replacing what the network did. Compliance monitoring, file reviews, financial promotions sign-off, complaints handling, breach recording and financial crime controls all become the firm’s responsibility, owned by its own SMF16 compliance officer and SMF17 MLRO.
Small and mid-size firms usually have three options:
- A full-time compliance officer and MLRO, for larger firms with many advisers or complex permissions.
- A fractional compliance officer and MLRO, approved at the firm and working a set number of days a month, often combined with outsourced monitoring support.
- An internal director taking on the functions, possible at very small firms if they have the time and expertise, though the FCA will look closely at whether it’s adequate.
Our comparison of fractional and full-time compliance officers sets out the costs and risks.
Other Functions the Network Used to Provide
What you’ll need in place
- A training and competence scheme, with competent supervisors for advisers
- File checking and quality assurance
- Complaints handling, with access to the Financial Ombudsman Service
- Financial promotions approval
- Financial crime controls: customer due diligence, monitoring and suspicious activity reporting
- Capital resources and professional indemnity insurance appropriate to the firm
- Regulatory reporting and fees, including FSCS and FOS levies
- Consumer Duty outcome monitoring and an annual board assessment
- Policies, procedures and a compliance monitoring plan
- A clear allocation of responsibilities across the Senior Managers
Some of this can be bought from compliance support providers. But the accountability sits with your Senior Managers, so they need to understand and oversee whatever is outsourced.
Timeline
| Stage | Typical timing | What to do |
|---|---|---|
| Decision and planning | 3–6 months before applying | Decide the structure; identify Senior Managers; start the compliance officer and MLRO search |
| Recruit key people | Before the application | Confirm the individuals who will be named in the application |
| Application prepared | 1–3 months | Business plan, policies, financial projections, SMF applications |
| FCA assessment | Up to 6 months for a complete application | Respond promptly to questions; interviews possible |
| Authorisation granted | – | Notify the network; transfer clients and activities on the agreed date |
| First year | Ongoing | Embed monitoring, T&C and reporting; review the Senior Manager arrangements |
The most common delay is naming Senior Managers late, or naming people the FCA isn’t convinced are ready. Starting the compliance officer and MLRO search before preparing the application avoids both. Our page on SMF authorisation support explains how we help firms build the team behind an application.
A ten-adviser advice firm decides to leave its network after six years. The two founders will become SMF3 directors, but neither has run compliance. The firm appoints an experienced fractional compliance officer and MLRO three days a month, supported by outsourced file checking, and names her in the application. The FCA asks about her time commitment and other roles. Because the engagement terms already set these out, the questions are answered quickly.
Finance and Regulatory Reporting
Directly authorised firms take on their own capital adequacy, regulatory returns and fee payments. Many small firms underestimate the finance work involved. Accountancy Capital, a sister practice of SMF Capital, recruits qualified finance professionals who can support regulatory reporting and client money arrangements where needed.
Advisers and Certified Staff
Advisers who move with the firm become certified staff of the new firm, and the firm must assess them as fit and proper before they start advising under its permissions. If you plan to grow after authorisation, our page on certified advisers and RDR-qualified roles covers adviser recruitment.
Choosing the Right Compliance Officer
The compliance officer and MLRO you name will usually have spent most of their career in a principal firm, a network or a directly authorised firm of a similar type. Experience of setting up compliance arrangements from scratch is especially valuable, because much of the first year is spent building rather than maintaining.
Common Mistakes
- Underestimating the compliance gap left by the network.
- Naming a director as compliance officer and MLRO without the time or experience to do it.
- Recruiting Senior Managers after submitting the application.
- Relying entirely on outsourced support without an approved individual who oversees it.
- Forgetting the timetable for moving clients from the network.
Going Directly Authorised
Services and guides for firms leaving an appointed representative network. Every SMF search is led personally by Adrian Lawrence FCA
Authorisation
Building the team behind your application.
→ SMF authorisation support
→ Form A mistakes to avoid
Compliance
Replacing the network’s support.
→ Compliance officer (SMF16)
→ MLRO (SMF17)
Advice Firms
Senior Managers who advise.
→ RDR-qualified Senior Managers
→ Certified advisers
Costs
What the people will cost.
→ SMF and compliance salary guide
→ Fractional and interim cover
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
Do our directors need FCA approval when we become directly authorised?
Yes, where they’ll perform Senior Manager Functions at the new firm, typically SMF1 or SMF3. Their approval is part of the authorisation application.
Can we use a fractional compliance officer and MLRO?
Often, yes, particularly at smaller firms, provided the time commitment and arrangements are adequate. The FCA will ask about them.
How long does authorisation take?
The FCA has six months to decide a complete application. Preparation usually takes one to three months beforehand.
Can we keep using the network’s compliance services after we leave?
Some networks and support providers offer services to directly authorised firms. But your own Senior Managers must hold the functions and oversee the services.
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 compliance officers and MLROs for firms leaving appointed representative networks. View Adrian’s ICAEW profile.
Planning to Go Directly Authorised?
Talk to us early about the Senior Managers you’ll name. We’ll help you build a team the FCA will accept, and keep your application on schedule.