The Three Tiers of the Solo-Regulated SMCR

For FCA solo-regulated firms, the SMCR has three tiers. Most firms are Core. The largest and most complex are Enhanced, with additional Senior Manager Functions and requirements. A smaller group are Limited Scope, with fewer requirements still. The FCA sets out the tiers and the categories of firm in each in its guidance for solo-regulated firms, and the rules are in SUP 10C.

Our guide to which SMFs apply at which firm tier covers the Core and Enhanced tiers in more depth.

Which Firms Are Limited Scope?

Limited Scope status is defined by the type of firm and its activities, not by size alone. The FCA’s rules list the categories, and they should be checked carefully for any particular firm. Broadly, Limited Scope firms include firms such as:

• some consumer credit firms with limited permission, where lending or credit broking is secondary to their main business, such as some retailers and motor dealers;
• firms whose principal business isn’t regulated financial services, carrying on insurance distribution or other activities as an add-on;
• certain internally managed alternative investment funds;
• not-for-profit debt advice bodies;
• some oil market participants and service companies; and
• sole traders, who are within the regime in a modified way.

Because the categories are specific, a firm should not assume it is Limited Scope simply because it is small. A small advice firm or wealth manager is usually Core. If you are unsure, check the FCA’s rules and take compliance advice before relying on Limited Scope status.

Who Holds SMF29?

SMF29 is the function held by the individuals at a Limited Scope firm who would otherwise be performing a governing function: typically directors, partners or the equivalent senior people responsible for running the firm. In a small limited company carrying on credit broking as a sideline, for example, the directors who oversee the regulated activity may hold SMF29. In an internally managed fund, it may be the people responsible for its management.

Limited Scope firms have fewer Senior Manager Functions than Core firms, but SMF29 is not necessarily the only one. Depending on the firm’s activities and the rules that apply to it, another function, such as the Chair (SMF9) or the Money Laundering Reporting function (SMF17), may also be relevant. The position varies by category of firm, so firms should check the FCA’s rules for their category rather than assuming SMF29 covers everyone. The complete guide to SMF designations lists every function.

What Holding SMF29 Means

An SMF29 holder is a Senior Manager. That means:

For many SMF29 holders, regulation is not their day job. A motor dealer’s managing director, for example, may spend most of their time on sales and operations. The regime still expects them to understand the firm’s regulated activity, its risks and its obligations, including the Consumer Duty where retail customers are involved.

Approval for SMF29

The approval process follows the usual Form A route, with the FCA assessing the candidate’s fitness and propriety. The FCA will look at whether the candidate understands the firm’s regulated activity, even if it is a small part of the business; whether they have the experience to oversee it; and whether their history raises any concerns. Common issues at Limited Scope firms include:

• Underestimating the role. Treating SMF29 as a formality because the regulated activity is minor.
• Gaps in disclosures. Missing past directorships, insolvencies or County Court judgments on the application.
• Thin Statements of Responsibilities. Not setting out clearly what the person is accountable for.
• Late references. Leaving regulatory references until the end.

Our guide to what goes wrong in Form A submissions covers these and other pitfalls in more detail.

Moving Out of Limited Scope

A firm’s tier can change. A firm that expands its regulated activities, moves from limited to full permission, or changes its business model may no longer be Limited Scope and become Core. When that happens, the firm needs to identify which Core Senior Manager Functions apply, including compliance oversight (SMF16) and money laundering reporting (SMF17), and arrange approvals for the people who will hold them. Some existing SMF29 holders may need approval for different functions. Planning that transition early avoids gaps. Smaller firms moving into the Core tier often find that a part-time compliance officer or fractional MLRO gives them the expertise they need at a proportionate cost.

Recruiting for SMF29 Roles

Limited Scope firms rarely recruit specifically for SMF29: the function attaches to people they appoint as directors or senior managers for business reasons. But because those people need approval, the regulatory dimension should be part of the hiring process. Firms should check candidates’ regulatory history, directorships and financial soundness before making an offer, make offers conditional on approval, and plan for the time the FCA’s assessment takes. Our guide to pre-offer checks for SMF candidates sets out what to check. Our pages on consumer credit and investment managers cover the sectors where Limited Scope firms are most common.

Frequently Asked Questions

What is a Limited Scope firm?

An FCA solo-regulated firm in one of the categories the FCA’s rules define as Limited Scope, usually because its regulated activity is narrow or secondary to its main business. Check the rules for your firm’s category.

Who needs SMF29 approval?

Typically the directors, partners or equivalent senior people at a Limited Scope firm who would otherwise hold a governing function.

Is SMF29 the only Senior Manager Function at a Limited Scope firm?

Not always. Depending on the firm’s category and activities, other functions may also apply, so check the FCA’s rules for your firm.

Do SMF29 holders have to follow the Conduct Rules?

Yes. As Senior Managers, they are subject to the Senior Manager Conduct Rules and the Duty of Responsibility.

What happens if our firm stops being Limited Scope?

The firm will become Core and need approvals for the relevant Core functions, such as SMF16 and SMF17. Plan the change before it happens.