FCA Compliance Consultant or Approved SMF16: How to Choose for a Small Firm
Small FCA-regulated firms often start by searching for an “FCA compliance consultant”, when what the regulator actually requires is an approved Senior Manager accountable for compliance. The two are not the same, and confusing them is one of the most common mistakes we see. This guide explains the difference, the four ways small firms combine them, what each costs and how to decide which fits your firm.
The Difference in One Sentence
A compliance consultant gives your firm advice and support; an approved SMF16 is the named individual the FCA holds accountable for your compliance function. A consultant can be very useful, but unless they are approved as your SMF16, they do not take on that accountability, and your firm still needs someone who does.
The SMF16 Compliance Oversight function applies to Core and Enhanced firms under the Senior Managers and Certification Regime. The holder must be approved by the FCA before they start, has a statement of responsibilities and is subject to the duty of responsibility. Our guide what is SMF16? explains the function in full.
What a Compliance Consultant Does
Compliance consultancies range from sole practitioners to large firms. Typical work includes:
- authorisation and variation of permission applications;
- writing or refreshing policies, procedures and the compliance manual;
- compliance monitoring, file reviews and thematic reviews;
- financial promotions reviews;
- training, including the Conduct Rules and Consumer Duty;
- gap analyses against new rules, and remediation projects.
All of that can be valuable. What a consultant does not do, unless they are approved for your firm, is hold the function. They advise; your SMF16 decides and answers for it.
What an Approved SMF16 Does
The SMF16 holder is responsible for the compliance function the firm must maintain under SYSC 6.1. They own the monitoring plan, report to the board on compliance risk, decide on breaches and notifications, and are the person the FCA expects to speak to about compliance. They can be employed full-time, part-time, or engaged on a fractional basis for a set number of days. Our fractional compliance officer (SMF16) page explains the fractional model.
The Four Options for a Small Firm
| Option | Who holds SMF16 | Best for |
|---|---|---|
| In-house SMF16, no consultant | An employee | Firms with enough work for a full or part-time compliance officer |
| In-house SMF16 plus consultant support | An employee, often a managing director or operations director in very small firms | Firms where the SMF16 has the authority but needs specialist help with monitoring or projects |
| Fractional SMF16 | An experienced individual engaged directly for set days | Firms that want senior, accountable compliance leadership without a full-time hire |
| Outsourced compliance officer | An individual supplied by a consultancy, approved for your firm | Firms that want an approved person plus a consultancy’s team behind them |
In the last two options, the approved person is accountable regardless of who pays them. See our outsourced compliance officer page for how that model works, and fractional or full-time compliance officer for the employment decision.
The Mistake to Avoid
The most common problem we see is a small firm that appoints a senior employee, often the managing director, as SMF16 in name, and relies on a consultant to do the actual work. The consultant writes the policies and runs the monitoring, but nobody inside the firm understands the results or acts on them. When something goes wrong, the FCA will look at the SMF16 holder, not the consultant.
That model can work, but only if the SMF16 has the time, knowledge and authority to oversee the consultant properly. Our guide to when the managing director is also the compliance officer explains the risks, and what you can and can’t outsource sets out the rules on outsourcing.
Scenario: A small directly authorised IFA’s managing director holds SMF16 and pays a consultancy for quarterly file reviews. The reviews keep finding the same suitability issues, but the findings go into a drawer. After a difficult supervisory call, the firm appoints a fractional SMF16 for one day a week who reviews the findings, agrees a remediation plan with the board and keeps the consultancy for the file checks. The firm now has both accountability and support.
How to Choose
Ask four questions:
- Who will actually hold SMF16? If nobody in the firm has the experience to oversee compliance, you need an experienced SMF16, fractional or employed, not just a consultant.
- How much work is there? Monitoring, advice, board reporting and regulatory change rarely fit into less than two to four days a month at even the smallest firm. Our guide to how many days a compliance officer needs helps size it.
- Is the work steady or project-based? Ongoing oversight suits an SMF16. One-off projects such as an authorisation, a gap analysis or a remediation suit a consultant.
- Do you need MLRO cover too? Many small firms combine SMF16 and SMF17 in one person. See combined compliance officer and MLRO recruitment.
What Each Option Costs
Consultancy is usually priced per project or as a monthly retainer for a defined scope of work. A fractional SMF16 is usually £650–£1,000 a day, often as a monthly retainer for an agreed number of days. Our guide to what a fractional compliance officer or MLRO costs sets out annual figures, and the SMF and compliance salary guide covers employed salaries.
The cheapest option on paper is often a consultant retainer with an in-house SMF16 who lacks compliance experience. It is also the option most likely to cost more later, if the FCA concludes the function was not being overseen.
Questions to Ask a Compliance Consultant
- Will you, or one of your team, be approved as our SMF16? If not, who do you expect to hold it?
- Who will actually do the work, and what is their experience in our sector?
- How will findings be reported, and to whom?
- What professional indemnity insurance do you hold?
- How do you handle conflicts with other clients?
- What happens if the person we work with leaves your firm?
Making the Combination Work
Where a firm uses both, the arrangement works best when the roles are written down. The SMF16 owns the monitoring plan and decides what the consultant reviews, the consultant reports findings to the SMF16 rather than straight to the business, and the SMF16 takes the findings, with their own view, to the board. Agree in advance who records breaches, who decides whether to notify the FCA, and who speaks to the regulator. The statement of responsibilities should reflect that the SMF16 oversees the outsourced work. If those lines are blurred, the firm ends up paying for advice that nobody acts on.
Appointed Representatives Are Different
If your firm is an appointed representative, your principal is responsible for your regulated activities and you do not need your own SMF16. Many ARs use consultants for support. If you are planning to become directly authorised, you will need your own Senior Managers; see going directly authorised.
Related Services and Guides
Accountable compliance leadership for small firms. Every search is run by our specialist team, with Adrian Lawrence FCA overseeing each mandate
Fractional SMF16
An approved compliance officer, part of the week.
→ Fractional compliance officer → Compliance officer and MLRO for small firmsFractional or full-time? →
Outsourced
An approved person plus a team.
→ Outsourced compliance officer → What you can outsourceWhen the MD is the compliance officer →
Combined Roles
SMF16 and SMF17 in one person.
→ Combined SMF16/17 → Fractional MLROWhat it costs →
The Function
What the FCA expects.
→ What is SMF16? → Compliance monitoringThe annual compliance report →
Every search is run by our specialist team, with Adrian Lawrence FCA overseeing each mandate
Frequently Asked Questions
Can a compliance consultant be our SMF16?
Yes, if they are approved by the FCA for your firm. That is how outsourced and fractional compliance officers work. A consultant who is not approved cannot hold the function.
Do small firms need an SMF16?
Core and Enhanced firms under the SMCR need an SMF16. Limited Scope firms and appointed representatives work differently.
Is a fractional SMF16 more expensive than a consultant?
Not necessarily. Day rates are similar; the difference is that a fractional SMF16 takes on the accountability as well as the work.
Can we use both?
Yes. Many small firms have an SMF16, fractional or employed, and buy in consultancy for file reviews or projects.
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 oversees every SMF Capital search. View Adrian’s ICAEW profile.
Need an Approved Compliance Officer?
Tell us about your firm and your current arrangements. We’ll come back the same working day with a view on whether you need a fractional SMF16, and who is available.
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 oversees every Senior Manager Function search.