Internal Promotion or External Hire? Filling a Senior Manager Role
When a Senior Manager leaves, the first question most boards ask is whether someone inside the firm can step up. Promoting a deputy is quicker to agree, cheaper and good for retention. It can also be the wrong answer: the regulator assesses an internal candidate exactly as it would an outsider, and a promotion that isn’t ready can stall an approval, weaken a control function and leave a second gap behind it. This guide sets out how to decide, what the regulator will look at, and how to run an internal and external process side by side.
The Regulator Doesn’t Give Internal Candidates a Head Start
An internal candidate still needs a Form A, still has to meet the fitness and propriety standard in the FIT sourcebook, and still has to show they have the competence and capability for the specific function. Knowing the firm is a real advantage, but it isn’t the same as having held senior accountability. The regulator will look at the candidate’s experience against the responsibilities in the Statement of Responsibilities, and for more significant roles it may interview them.
There are some practical advantages. The firm can assess fitness and propriety from direct experience, its own records cover the current period of employment (though references are still needed from any other employers in the last six years, as explained in the six-year rule), and the candidate already understands the business model, the systems and the people. If they hold a certification function, the firm has annual assessments on file. These can make an application stronger, but only if they show the candidate has already been doing work at the right level.
When Promoting Internally Works
Internal promotions tend to succeed where the deputy has genuinely been operating close to the role. The signs are consistent:
- They have deputised for the Senior Manager, including at board or committee meetings, and the records show it
- They have owned significant parts of the function, not just supported them
- They have dealt with the regulator directly, for example on supervisory meetings or attestations
- The board and the other Senior Managers see them as a peer, not as a junior
- They have the technical background the function needs, such as financial crime experience for an MLRO or prudential experience for a CFO
- Their own role can be backfilled without creating a new weakness
- They want the personal accountability that comes with the role, including the Senior Manager Conduct Rules and the Duty of Responsibility
Where most of these are true, an internal promotion is often the strongest option. It preserves continuity, it is usually faster because there is no notice period, and it signals to the rest of the team that progression is possible.
When an External Hire Is the Better Choice
An external search makes sense where the firm needs something it doesn’t have. That might be experience the deputy hasn’t yet gained, independence from a function that has had problems, or skills the firm needs for the next stage of growth.
| Situation | Why external usually wins |
|---|---|
| The function has had regulatory problems, a skilled person review or enforcement | The regulator may want to see fresh oversight and a clear break; see staffing a section 166 remediation |
| The firm is moving up a tier, for example becoming an enhanced firm | The role is larger than the one the deputy has been supporting; see becoming an enhanced firm |
| The firm is entering a new regulated activity or market | Specialist experience may only exist outside the firm |
| The deputy has only worked at this firm | Limited exposure to different approaches can be a weakness in a senior control role |
| The board wants challenge rather than continuity | An outsider is more likely to question established practice |
| Promoting would leave a gap that is harder to fill | A specialist deputy may be scarcer than the Senior Manager they would replace |
Scenario: A consumer credit firm’s SMF16 resigns. The deputy is technically strong and well liked, but has never attended the board and has no experience of dealing with the FCA directly. The firm runs an external search in parallel while the deputy acts as interim lead below the function, with an experienced fractional compliance officer holding SMF16 for a defined period. After four months, the board appoints an external candidate and creates a clear development plan for the deputy, who is promoted when the next opportunity arises two years later.
Running Both at Once
Boards sometimes feel that running an external search is unfair to the internal candidate. In practice, a well-run parallel process is often better for everyone. The internal candidate is measured against the market, the board has evidence for its decision, and if the internal candidate is chosen, the regulator sees that the firm made the choice on merit.
- Be honest with the internal candidate. Tell them the firm will look externally as well and explain why. Most strong internal candidates welcome the chance to prove themselves.
- Use the same criteria for everyone. Assess every candidate against the same role profile, the same Statement of Responsibilities and the same interview questions. Our guide to interviewing an SMF candidate sets out the questions that matter.
- Involve someone independent. A non-executive director or an external adviser helps avoid the familiarity effect, where the board rates the person it knows more highly.
- Plan for the candidate who isn’t chosen. If the internal candidate doesn’t get the role, agree what development they will receive and how their position will be protected.
- Keep the timetable tight. A long process with an internal candidate waiting in limbo damages morale. Set dates and keep to them.
Covering the Function While You Decide
Whichever route the firm takes, the function must be covered from the day the outgoing holder leaves. The options are to reallocate the responsibilities temporarily to another approved Senior Manager, to use the 12-week rule for unforeseen absences, or to appoint an interim or fractional holder who is approved for the function. The deputy can lead the team day to day, but if they haven’t been approved, they can’t take on the Senior Manager’s accountability. Firms that blur this line are taking a risk with the regime, and with the deputy’s own position.
If the outgoing Senior Manager is the MLRO, the cover arrangement matters even more because of the nominated officer’s legal duties. Our guide to what to do when your MLRO has resigned covers the first month in detail.
Preparing a Deputy for Promotion
The best way to make an internal promotion work is to plan for it long before the vacancy arises. That is the core of SMF succession planning. Firms that do this well give deputies:
- regular, recorded deputising, including at board and committee meetings;
- direct contact with the regulator where appropriate;
- ownership of discrete parts of the function, such as the compliance monitoring plan or the annual MLRO report;
- relevant training and qualifications, recorded as part of their ongoing fitness and propriety assessment; and
- exposure to the wider business, so they understand the risks they will oversee.
This builds an evidence base that strengthens a future Form A. It also tells the board, well in advance, whether the deputy is likely to be ready when the time comes.
A Decision Table for Boards
| Question | Points to internal | Points to external |
|---|---|---|
| Has the deputy performed the role in practice? | Yes, regularly and with records | Rarely, or only informally |
| Is the function in good health? | Yes, with no significant regulatory issues | No, or under review |
| Is the role changing in scope? | No | Yes, growing or moving tier |
| Can the deputy’s own role be backfilled? | Yes, quickly | No, it would create a new gap |
| Would the regulator see the candidate as ready? | Clear evidence of competence | Doubtful, or untested |
| How urgent is the appointment? | Very urgent with no notice period to wait for | Interim cover is in place |
If the answers are mixed, a parallel process is usually the right step. It costs a little more time, but it gives the board a defensible decision and the regulator a clear rationale.
Filling an SMF Vacancy
External searches, interim cover and benchmarking internal candidates. Every SMF search is led personally by Adrian Lawrence FCA
SMF Recruitment
Permanent Senior Manager searches.
→ SMF recruitment services
→ CEO recruitment (SMF1)
Control Functions
Compliance and financial crime leaders.
→ Compliance officer (SMF16)
→ MLRO (SMF17)
Interim Cover
Covering the function while you decide.
→ Fractional and interim cover
→ Fractional or full-time?
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
Does an internal candidate need FCA approval to become a Senior Manager?
Yes. Being employed by the firm makes no difference. The firm must submit a Form A, and the regulator assesses the candidate’s fitness and propriety for the specific function.
Is internal promotion faster?
Usually, because there is no notice period and the firm already holds much of the information it needs. The regulator’s assessment still takes the same time.
Can a deputy act as the Senior Manager while the firm recruits?
They can lead the team, but they can’t perform the Senior Manager Function without approval unless a temporary arrangement such as the 12-week rule applies and its conditions are met.
Should we tell the internal candidate we are looking externally?
Yes. Being open avoids damaging trust, and a strong internal candidate will usually welcome a fair comparison with the market.
What happens to the deputy’s role if they are promoted?
It needs backfilling. Plan for this from the start, because a specialist deputy can be harder to replace than the Senior Manager.
Can you benchmark our internal candidate?
Yes. We can run a confidential external search alongside your internal process so the board can compare candidates on the same basis.
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, including Exec Capital for executive appointments. He leads every SMF Capital search personally, and often benchmarks internal candidates against the market for boards deciding between promotion and an external hire. 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 personally leads every Senior Manager Function search.
