SMF27 Explained: What the Partner Function Means at an FCA-Regulated Partnership
Most SMFs map onto a job title a candidate will recognise from a company: chief executive, chief finance officer, chair. SMF27 is different. Many regulated firms, particularly in wealth management, asset management, broking and advice, are partnerships or LLPs with partners or members rather than directors. SMF27, the Partner function, is how the SMCR applies to them. This guide explains who needs it, how it works in professional firms, what the Statement of Responsibilities should cover and how to recruit a partner into a regulated firm.
Why Partnerships Need Their Own SMF
A company has directors whose duties come from company law, and the SMCR maps onto them through functions such as SMF1, SMF3 and SMF9. A partnership or LLP has partners or members whose relationship with the business and each other is governed by a partnership or members’ agreement. SMF27 brings partners into the same personal accountability as directors without forcing a corporate structure onto a business that isn’t organised that way.
Who Performs SMF27
The rules are in SUP 10C.5. In summary:
| Situation | Position |
|---|---|
| Partnership or LLP whose main business is regulated activities | Each partner or member who takes part in managing the firm performs SMF27, unless the role is covered by another SMF |
| LLP members and people who direct the firm’s affairs | Covered, including anyone whose directions the members are accustomed to act on, unless the advice is given in a professional capacity |
| Limited partners in a limited partnership | Excluded |
| Partners who play no part in managing the firm | Unlikely to perform the function |
| Professional firm whose main business is not regulated activities, such as a law or accountancy firm | Only partners responsible for regulated activities; partners whose regulated activities are incidental to professional services need not be approved |
| Limited Scope firms | Partners usually fall under the Limited Scope function, SMF29; see SMF29 explained |
In a professional firm, a partner is treated as responsible for each regulated activity unless the firm has assigned it to another partner or group of partners. Firms that don’t make that allocation clearly may find more partners need approval than they intended.
Getting the list right takes judgement. Firms sometimes over-designate partners who don’t need approval, or, more riskily, miss someone who does take part in management. A partner with a large client book but no management role is different from one who chairs the investment committee or runs a business line.
What SMF27 Carries
An SMF27 has the same accountability as any Senior Manager: a Statement of Responsibilities setting out what they are answerable for, the Senior Manager Conduct Rules, and the Duty of Responsibility to take reasonable steps to prevent breaches in their area. In a partnership, the Statement should describe the partner’s actual management responsibility: a business line, a governance committee, compliance oversight, or a defined part of the regulated business.
Partnerships often have less formal governance documentation than companies, so precise Statements of Responsibilities matter more. “Senior partner” is not a description of accountability. If there is ever a dispute about who was responsible for a failure, the Statement and the partnership’s management structure are where the regulator will look. See writing a Statement of Responsibilities.
Other Functions in a Partnership
A partnership still needs the other functions that apply to its tier. The managing partner may hold SMF1 if they have chief executive responsibility; a partner may be the compliance officer (SMF16) or MLRO (SMF17); and an Enhanced partnership needs its full set of functions. Where a partner holds another SMF, check how SMF27 applies alongside it. See holding more than one SMF.
Recruiting Into a Partnership
Bringing a partner into an SMF27 role differs from hiring an executive into a company, for reasons beyond the designation:
- Economics: capital contribution, profit share, drawings and tax status as a self-employed member
- Commitment: admission is a long-term decision for both sides, with restrictive covenants and exit terms in the partnership agreement
- Culture and decision-making: partners decide collectively, and new partners need to work within that
- Timing: the partner can’t take part in management until approved, so admission and approval must be planned together
A candidate can be an excellent fit for the regulatory accountability and a poor fit for the partnership, or the reverse. A search that tests only one is incomplete. Regulatory references, criminal record checks and the Form A follow the same process as for any Senior Manager. See managing the gap between offer and approval.
Financial Soundness and Partner Capital
Financial soundness is part of the fit and proper test for every Senior Manager, but it has particular relevance for partners, who usually contribute capital and share in profits and losses. Where a new partner funds their capital contribution with a loan, the terms should be clear and affordable, and any previous financial difficulties, such as a judgment or insolvency, must be disclosed in the application. Firms should run credit checks during the search, not after admission is agreed, so nothing surfaces late. See SMCR background checks.
Who Fits the Profile
- Existing partners at comparable regulated partnerships, who understand both the accountability and partnership economics
- Senior executives from company-structured regulated firms moving into a partnership, who can show they understand how partnership decision-making and accountability differ
- Senior professionals stepping up to partnership internally, who need preparation for both admission and approval; see internal promotion
Common Mistakes
- Not mapping partners to responsibilities: every partner who takes part in management should be on the list, with a Statement of Responsibilities, and the firm should be able to explain why anyone left off doesn’t need approval.
- Leaving regulated activities unallocated in a professional firm: without a clear allocation, partners are treated as responsible for each regulated activity, which can widen the approval requirement.
- Admitting before approval: a new partner who takes part in management before approval is performing a controlled function without approval.
- Collective decisions, no individual accountability: partnerships often decide by committee, but the SMCR needs named people responsible for each area.
- Forgetting the leavers: when a partner retires or leaves, the firm must file a Form C within seven business days and reallocate their responsibilities. See Forms B to E.
A governance review can check the partnership’s map of responsibilities against how the firm is actually run.
Scenario: A wealth management LLP plans to admit a new partner to lead its private client business. The candidate is a senior director at a company-structured wealth manager and has held SMF3. We test her on partnership economics and collective decision-making as well as regulatory fit, and the LLP drafts a Statement of Responsibilities covering private client advice and suitability. Her admission is timed to follow approval, and she joins as a partner the week her SMF27 application is approved.
Where This Sits
SMF27 is a niche function compared with SMF1 or SMF16/17, but it matters to the wealth managers, boutique asset managers and broking partnerships that make up a large part of the regulated market. These firms benefit from a search that understands both halves of the appointment. See SMF recruitment for wealth management and investment managers.
Partnership SMF Recruitment
Partners and Senior Managers for regulated partnerships. Every partnership search is overseen by Adrian Lawrence FCA
Wealth and Investment
Partnership-heavy sectors.
→ Wealth management → Investment managersWhich SMFs at which tier →
Leadership
Managing partners and executives.
→ Regulated CEO (SMF1) → Retained executive searchSenior Manager Functions →
Compliance
Partners and compliance roles.
→ Combined SMF16/17 → RDR-qualified Senior ManagersSMF29 explained →
Structure
Getting accountability right.
→ Governance review → SMF authorisation supportHolding more than one SMF →
Every partnership search is overseen by Adrian Lawrence FCA
Frequently Asked Questions
What is SMF27?
The Partner function, which applies to partners or LLP members who take part in managing an FCA-regulated partnership.
Does every partner need approval?
Not necessarily. Partners who play no part in management are unlikely to perform the function, and limited partners are excluded.
How does SMF27 apply to law or accountancy firms?
Where the firm’s main business is not regulated activities, only partners responsible for regulated activities need approval, and incidental activities are usually excluded.
Can a partner hold SMF27 and another SMF?
Partners often hold other functions, such as SMF16. Check how the functions apply together under the current rules.
When can a new partner start managing the firm?
Only once approved, so plan partnership admission and approval together.
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.
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