What Is SMF6?

Most Senior Manager Functions are defined by a role: chief executive, chief finance officer, chief risk officer, compliance officer. SMF6 is different. It is defined by the size and significance of the business area a person manages. The PRA wanted to make sure that the heads of very large business lines in banks, such as a major retail bank, a large corporate bank or a substantial markets business, are personally accountable to the regulator even if they don’t sit on the board.

A person approved as SMF6 holds a Senior Manager Function in the usual way. They need approval before they start, they have a Statement of Responsibilities, and they are subject to the Senior Manager Conduct Rules and the Duty of Responsibility. Because SMF6 is a PRA function, the PRA leads the approval, with the FCA’s consent. The function is defined in the Senior Management Functions part of the PRA Rulebook for CRR firms.

Which Firms Does SMF6 Apply To?

Our guide to which SMFs apply at which firm tier sets out the full picture, and our guide to PRA and FCA dual regulation explains how the two regulators share responsibility for approvals.

The Size Test

Whether a business area is “key” depends on its size, measured against thresholds set by the PRA. Broadly, the test captures business areas that are very large in absolute terms, measured by the assets they hold, or that account for a significant share of the firm’s or its group’s revenue. The thresholds are set high: they are designed to catch the largest business lines at the largest banks, not every divisional head.

The precise thresholds, and how assets and revenue should be measured, are set out in the PRA Rulebook. Because the wording is technical and can change, firms should always work from the current rule text rather than a summary, and should involve their compliance and legal teams when deciding whether a business area qualifies. The PRA’s material on the accountability regime gives further background.

Two practical points follow. First, the test needs to be re-run as the business changes. A business area that grows through acquisition or organic growth can cross the threshold, and its head then needs approval. Second, how a firm defines its business areas matters. Firms should define them in a way that reflects how the business is actually managed, not in a way that keeps individual areas below the threshold.

How SMF6 Fits With Other Functions

A Head of Key Business Area sits in the executive team alongside other Senior Managers, and the boundaries need to be clear on the firm’s responsibilities map.

• SMF1 Chief Executive. The SMF6 typically reports to the chief executive, who remains responsible for the overall management of the firm.
• SMF3 Executive Director. If the head of a key business area also sits on the board, the firm needs to consider whether SMF3 applies as well. See SMF3 explained.
• SMF24 Chief Operations. Operations and technology supporting the business area usually sit with the chief operations function, so the split of responsibilities for operational resilience must be clear.
• SMF4 Chief Risk and SMF16 Compliance. The control functions provide independent oversight of the business area. The SMF6 owns the risks; the control functions challenge how they are managed.
• SMF7 Group Entity Senior Manager. Where the business area is run from elsewhere in a group, the person exercising significant influence may need approval as SMF7 instead.

What the Role Involves

The Head of Key Business Area is accountable for the business area in its entirety: its strategy, performance, risks, controls and conduct. In practice, that means:

Approval and Fit and Proper

Candidates for SMF6 are assessed against the regulators’ fit and proper standards: honesty and integrity, competence and capability, and financial soundness. For a role of this scale, the regulators will expect a substantial track record of running large, complex businesses, typically at a comparable bank, and a clear understanding of the prudential and conduct risks involved. Candidates may be interviewed. Our guide to preparing for an approval interview covers what to expect.

The application needs a well-drafted Statement of Responsibilities that sets out precisely which business area the person heads, how it is defined and where the boundaries lie with other Senior Managers. A vague description, or one that doesn’t match the responsibilities map, is one of the most common reasons for questions from the regulators. Regulatory references covering the previous six years are required, and senior banking candidates often have several employers to cover.

Recruiting a Head of Key Business Area

SMF6 searches are among the most senior in UK banking, and the candidate pool is small. They usually require a retained, research-led approach; see retained executive search. A few points make the difference:

• Confirm the designation early. Agree with compliance whether the role is SMF6, SMF3, SMF18 or another function before the brief is finalised.
• Brief against accountability. Define the business area and the Statement of Responsibilities alongside the job description.
• Search across comparable banks. The best candidates usually run similar businesses elsewhere and are not actively looking.
• Assess approvability before the shortlist. Previous approvals, regulatory history and references should be checked early.
• Plan for time. Senior banking notice periods, deferred remuneration and the PRA’s assessment all add months; see how long an SMF appointment takes and structuring an SMF offer.

Our page on SMF recruitment for banks and building societies covers how we approach senior banking searches, and our article on dual-regulated SMF hiring explains what makes them different.

Common Mistakes

• Not re-running the size test. Business areas grow, and heads can need approval long before anyone notices.
• Defining business areas artificially. Splitting a business on paper to stay below the threshold invites supervisory challenge.
• Overlapping responsibilities. Unclear boundaries between the SMF6, the chief operations function and the control functions weaken accountability for everyone.
• Appointing before approval. As with any Senior Manager Function, the person can’t perform the role until approved, subject to the limited temporary cover rules.

Frequently Asked Questions

Does SMF6 apply to insurers?

No. SMF6 applies to banks, building societies and PRA-designated investment firms. Insurers have a different set of PRA functions.

What makes a business area “key”?

Its size, measured against thresholds in the PRA Rulebook based on assets and share of revenue. Check the current rule wording with your compliance team.

Does an SMF6 need to sit on the board?

No. SMF6 is about running a large business area, not a board seat. If the person also sits on the board, other functions may apply too.

Who approves an SMF6?

The PRA, with the FCA’s consent, because it is a PRA-designated function.

What happens if a business area grows past the threshold?

Its head will need approval as SMF6. Firms should monitor the test and plan the application before the threshold is crossed.