Sizing the Compliance Team: When to Hire a Head of Compliance and Who Comes Next

There Is No Regulatory Ratio

The FCA does not set a minimum number of compliance staff per employee, customer or pound of revenue. What it requires, under SYSC 6.1, is a compliance function that is permanent and effective, operates independently and has the authority, resources, expertise and access to information it needs. Smaller firms can apply some of those requirements proportionately, but the function still has to work.

That makes sizing a judgement, and the person accountable for it is your SMF16. If the function is under-resourced and something goes wrong, the regulator will ask whether the SMF16 raised it and whether the board acted. Our guide to the duty of responsibility explains why that conversation matters, and what is SMF16? covers the function in full.

What Drives the Size of the Function

Headcount matters less than the risks your firm runs. The factors that push compliance workload up most are:

• Retail customers. Consumer Duty, complaints, vulnerable customers and financial promotions all scale with customer numbers.
• Permissions and products. Complex or high-risk products, advice, lending, client money and client assets each add a layer of work.
• Distribution. Introducers, appointed representatives and third-party platforms need oversight. See principal firm and AR recruitment.
• Growth and change. New products, markets and acquisitions create advisory work before they create monitoring work.
• Regulatory attention. A section 166 review, a voluntary requirement or a period of close supervision can double the workload overnight.
• Financial crime risk. If the head of compliance is also the MLRO, the financial crime workload sits on the same desk. Our guide to sizing the financial crime team covers that side.

How Compliance Functions Typically Grow

Every firm is different, but most compliance functions pass through five broad stages.

Our pages on fractional compliance officers, SMF16 compliance officer recruitment and CCO and head of compliance recruitment cover each step.

Signs You Need a Full-Time Head of Compliance

Two or three of these together usually mean the fractional model has run its course. A good fractional SMF16 will tell you so, and help plan the handover. Our article on fractional or full-time compliance officer covers the decision in more depth.

Who Comes After the Head of Compliance

Once a head of compliance is in place, the next hires usually follow the work that is piling up. The most common order is:

1. Compliance analyst or officer. Takes on day-to-day monitoring, breach logs, training records and regulatory change tracking, freeing the head of compliance for advice and the board.
2. Financial promotions reviewer. Often the first specialist hire at retail firms with active marketing. Our guide to the compliance officer’s role in financial promotions explains why the volume grows quickly.
3. Compliance monitoring lead. Owns the monitoring plan, file reviews and thematic work, and reports results to the head of compliance.
4. Separate MLRO or deputy MLRO. When financial crime work outgrows a combined role. See when to split a combined SMF16/SMF17 role and do you need a deputy MLRO?
5. Advisory and regulatory change specialists. In larger firms, people dedicated to product governance, Consumer Duty outcomes and horizon scanning.

Some of this work can be bought in rather than hired, particularly file reviews and specialist projects. The firm keeps responsibility, and the head of compliance needs the time to oversee what is outsourced. Our guide to what you can and can’t outsource explains the limits.

Budgeting for the Function

Compliance cost is usually discussed as a percentage of revenue or headcount, but those ratios mislead because the work scales with risk, not size. A better approach is to cost the activities the function must deliver: the monitoring plan, board reporting, advice to the business, financial promotions, complaints oversight, training and regulatory change. Then decide which need senior judgement and which can be done by more junior people or outsourced.

For current pay ranges, see our SMF and compliance salary guide and what SMF roles actually pay. For the cost of a combined role, see what a combined compliance officer and MLRO costs.

Getting the Board Comfortable

The board approves the resources, so the case for a bigger team usually has to come from the compliance officer. The strongest cases set out the work the function must deliver, what is slipping, the risks that creates and the options, including fractional, outsourced and permanent hires. The annual compliance report is a natural place to make that case. Our guide to the annual compliance report covers what it should contain.

Frequently Asked Questions

How many compliance staff does a regulated firm need?

There is no fixed ratio. The FCA requires an effective, adequately resourced compliance function, so the size depends on your customers, products, distribution and growth rather than headcount alone.

When should we replace a fractional compliance officer with a full-time one?

Usually when the days needed reach three or more a week, the monitoring plan is slipping, or the firm takes on significant new risk such as retail growth, client money or appointed representatives.

What is the first hire after a head of compliance?

Most often a compliance analyst or officer to take on day-to-day monitoring and administration, followed by a financial promotions reviewer at retail firms.

Can we outsource part of the compliance function?

Yes, particularly file reviews and specialist projects, but the firm and its SMF16 keep responsibility and must oversee the outsourced work.