Two Kinds of Non-Executive Director

Under the Senior Managers and Certification Regime, non-executive directors fall into two groups:

Non-Executive Senior Manager Functions

The non-executive roles that can be Senior Manager Functions are:

• SMF9 Chair of the Governing Body, at Core and Enhanced firms
• SMF10 Chair of the Risk Committee and SMF11 Chair of the Audit Committee
• SMF12 Chair of the Remuneration Committee
• SMF13 Chair of the Nomination Committee
• SMF14 Senior Independent Director

The committee chair functions and the Senior Independent Director apply mainly at Enhanced firms and dual-regulated firms such as banks and insurers. At most smaller Core firms, the chair is the only non-executive Senior Manager. These roles need regulatory approval, a Statement of Responsibilities and, for the Prescribed Responsibilities allocated to them, personal accountability. Our page on chair and committee chair recruitment covers how we recruit for them.

Other Non-Executive Directors

Independent non-executives who don’t chair the board or a relevant committee aren’t Senior Managers and don’t need approval. They’re still covered by the regime in three ways:

Conduct Rules

They’re subject to Individual Conduct Rules 1, 2 and 3 (integrity; due skill, care and diligence; openness with regulators) and to Senior Manager Conduct Rule SC4 (disclosing information the regulator would reasonably expect). The rules are in COCON, and our Conduct Rules training guide explains them.

Regulatory References

Firms appointing non-executives are generally expected to obtain regulatory references under the FCA’s rules in SYSC 22. Check the requirements for your firm. Our regulatory reference checklist helps manage the process.

The FCA Directory

Directors who aren’t Senior Managers appear in the FCA’s public Directory, so firms must report their details.

What Accountability Means for a Non-Executive

Non-executive Senior Managers are accountable for their own responsibilities, such as how the chair leads the board or how the risk committee chair oversees risk. They aren’t accountable for running the business, which remains the executive’s job. The regulators expect them to provide challenge, ask for the information they need and record their concerns.

All non-executives, approved or not, are expected to bring independent judgement. In enforcement cases, regulators look at whether boards received warning signs, asked questions and acted. Board minutes that record challenge protect non-executives as much as executives. Non-executives should make sure their questions and concerns are minuted.

What Firms Should Check Before Appointing a Non-Executive

Our board skills matrix template helps boards identify what a new non-executive needs to bring.

Dual-Regulated Firms

At banks, building societies and insurers, the PRA also has an interest in non-executive appointments. It designates several of the board-level Senior Manager Functions, often interviews candidates for chair and committee chair roles, and considers whether the board collectively has the knowledge, skills and experience it needs. Our post on PRA collective suitability explains what that means for board appointments.

Time Commitment

Non-executive roles at regulated firms usually demand more time than at unregulated companies, particularly committee chairs during periods of change or remediation. Before appointing, confirm the candidate’s other commitments. Our post on NED time commitment and overboarding covers what’s realistic.

Group Executives on Subsidiary Boards

Many regulated firms in groups have group executives sitting on their boards as non-executive directors. They can bring valuable knowledge of the wider group, but they aren’t independent, and they may face conflicts where the group’s interests differ from the regulated firm’s. Regulators generally expect regulated subsidiaries to have independent non-executives as well, to provide challenge that group representatives can’t. If a group executive chairs the subsidiary board, they’ll usually need approval as SMF9. Our article on group SMF roles covers this in more detail.

Recruiting Non-Executives

SMF Capital recruits non-executives where the role carries a Senior Manager Function: chairs, committee chairs and Senior Independent Directors. For independent non-executive roles that don’t, NED Capital, a sister practice of SMF Capital, specialises in non-executive director recruitment for boards of every size. Where a board needs both, the two practices work together.

Induction for New Non-Executives

A structured induction helps new non-executives contribute quickly and meet their regulatory obligations. It should cover the firm’s business model and risks, its regulatory history and relationship with its supervisors, the Responsibilities Map or allocation of Senior Manager responsibilities, recent board and committee papers, and meetings with the chief executive, the heads of the control functions and the external auditor. For non-executives taking on a Senior Manager Function, the induction should also cover their Statement of Responsibilities and the Senior Manager Conduct Rules that will apply to them.

Frequently Asked Questions

Do non-executive directors need FCA approval?

Only if they hold a Senior Manager Function, such as chair, a relevant committee chair or Senior Independent Director. Other non-executives don’t need approval.

Which Conduct Rules apply to non-executives?

Non-executives who aren’t Senior Managers are subject to Individual Conduct Rules 1–3 and Senior Manager Conduct Rule SC4. Non-executive Senior Managers are subject to the rules that apply to Senior Managers.

Are non-executives certified?

No. Non-executives aren’t part of the Certification Regime, though firms should still satisfy themselves that they’re suitable.

Does becoming a committee chair need approval?

Yes, where the committee chair role is a Senior Manager Function at your firm.