What SMF3 Covers

SMF3 applies to members of a regulated firm’s board who are also employees, as opposed to non-executive directors. At Core firms, it is the function that brings most board-level executives into the regime: the finance director of a Core investment manager, for example, is usually a Senior Manager because they sit on the board, not because of their finance role. At Enhanced firms, banks and insurers, executive directors who are not approved for a more specific function, such as SMF1, SMF2 or SMF24, hold SMF3. Our guide to SMF3 explained covers the function in detail, and the rules are in the FCA’s SUP 10C.

An SMF3 holder needs approval before joining the board, has a Statement of Responsibilities, is subject to the Senior Manager Conduct Rules and falls within the Duty of Responsibility. That means an executive director at a regulated firm takes on personal regulatory accountability that a director of an unregulated business does not.

Roles We Recruit as SMF3

Getting the designation right before recruiting matters, because it shapes the job description, the Statement of Responsibilities and the approval application. Our guide to SMF3 or SMF18 covers the most common question, and which SMFs apply at which firm tier sets out the full picture.

Why SMF3 Searches Need a Specialist

An executive director search at a regulated firm has two parts. The first is a conventional senior hire: finding someone with the functional expertise, leadership and fit the business needs. The second is regulatory: making sure the person can be approved, understands what personal accountability means and will be credible to the regulator as a board member. A generalist search can find a good finance or operations director and then discover, months later, that the candidate’s regulatory history or lack of regulated-sector experience causes problems at the application stage.

We combine both. We search for functional strength, but every candidate is assessed against the fit and proper test before the shortlist, and we test how they understand the responsibilities they would hold.

How We Run an SMF3 Search

• Confirm the designation. We check whether the role is SMF3, a more specific function or SMF18, and agree a draft Statement of Responsibilities.
• Brief with the board. We agree what the new executive director must add to the board, using a board skills matrix where helpful.
• Direct, confidential search. We approach experienced directors who aren’t actively looking, without naming your firm until the right point.
• Fit and proper pre-assessment. Previous approvals, directorships, regulatory references and financial soundness are checked before the shortlist.
• Personal interviews. Adrian Lawrence FCA interviews every shortlisted candidate, testing their understanding of board accountability under the SMCR.
• Approval and appointment. We support the Form A and plan the board appointment so that it follows approval rather than preceding it.

What We Look For in SMF3 Candidates

SMF3 at Newly Authorised and Growing Firms

Newly authorised firms often need several Senior Managers at once, and executive directors are part of that team. A payments or fintech business applying for authorisation will typically need a chief executive, one or more executive directors, a compliance officer and an MLRO, all of whom must be credible in the application. Growing firms face the same question from a different direction: as investors join and boards are strengthened, founders and senior employees move onto the board and become SMF3s. In both cases, the board should think about the executive team as a whole, rather than one appointment at a time, so that the combined experience covers the firm’s risks. Our guide to building an SMF team from scratch covers the authorisation stage, and our board and executive team build service recruits several Senior Managers together.

Common Pitfalls

• Appointing before approval. Board minutes, Companies House filings and announcements should follow regulatory approval, not precede it.
• A vague Statement of Responsibilities. Because SMF3 is triggered by the board seat rather than a specific area, the Statement of Responsibilities must say clearly what the person is accountable for.
• Forgetting promotions. Adding an existing employee to the board requires approval just as an external hire does.
• Missing a change in tier. As a Core firm becomes Enhanced, some SMF3 holders need approval for more specific functions. See becoming an Enhanced firm.
• Underestimating timing. Notice periods plus approval can take months. See how long an SMF appointment takes.

Timing, Pay and Offers

A permanent SMF3 search typically takes three to five weeks to shortlist, with the candidate’s notice period and the regulator’s assessment on top. Offers should be made conditional on approval, and firms should plan to keep candidates engaged through the gap; see managing the gap between offer and approval. Pay varies widely with the firm’s size, sector and the director’s function; our salary guide gives benchmarks, and our guide to structuring an SMF offer covers buy-outs and deferred pay. For firms that need board-level finance expertise without a full-time executive, our sister practice FD Capital places fractional and interim finance directors.

Frequently Asked Questions

Does every executive director at a regulated firm need SMF3?

Most do, unless they are approved for a more specific function that covers their role. Check the rules for your firm’s tier before recruiting.

Does promoting an employee to the board need approval?

Yes. An internal promotion to the board triggers SMF3 just as an external hire does, and approval is needed before they take the seat.

What’s the difference between SMF3 and SMF18?

SMF3 is triggered by sitting on the board as an executive. SMF18 applies at Enhanced firms to people with overall responsibility for an area who aren’t otherwise approved.

How long does an SMF3 appointment take?

Shortlisting typically takes three to five weeks, and approval takes up to three months from a complete application, alongside the candidate’s notice period.

Do you recruit for insurers and banks?

Yes. We recruit executive directors across Core and Enhanced FCA firms, banks, building societies and insurers.