The Four Options

Firms that need both functions covered usually choose between four structures:

• Two separate full-time Senior Managers. A dedicated compliance officer and a dedicated MLRO, each employed.
• One full-time combined holder. One employee approved for both SMF16 and SMF17.
• One fractional combined holder. An experienced, approved individual working an agreed number of days a week or month for the firm, usually through their own company.
• A fractional or employed holder plus outsourced support. One of the above, with routine work such as file checks, screening or monitoring testing provided by a specialist firm.

Whatever the structure, the Senior Manager Functions themselves can’t be outsourced. The individual holding SMF16 and SMF17 must be approved by the FCA and personally accountable, as our guide to what you can and can’t outsource explains.

Typical Costs

The figures below are drawn from our SMF and compliance salary guide and reflect what we see at smaller firms. Larger firms, London roles and higher-risk sectors sit towards the top of each range.

Employer costs for permanent staff, meaning employer’s National Insurance, pension contributions and benefits, typically add 20 to 30 per cent to base salary. Fractional and interim holders usually invoice through their own company, so those costs fall away, but the day rate is correspondingly higher.

Worked Example: A Small Broker

A small directly authorised broker with a stable client base needs SMF16 and SMF17 covered. Its risks are moderate and volumes are low. A sizing exercise suggests the work needs about one day a week, including board reporting and the annual MLRO report, with a small allowance for urgent matters.

For this firm, a full-time employee would cost more than twice as much and would likely be under-occupied. The fractional route also gives access to a more experienced individual than a £75,000 salary would attract. Figures are illustrative only.

Worked Example: A Growing Payments Firm

A small authorised payment institution has grown quickly. Its merchant numbers and transaction volumes mean financial crime work alone now takes two days a week, and compliance work another day and a half.

At this level of activity, a fractional arrangement no longer saves money, and the firm gains continuity and availability by employing someone. The extra analyst is what keeps the combined role workable. If growth continues, the next step is usually a deputy MLRO or a split of the two functions. Our guide to when to split a combined SMF16 and SMF17 role covers the warning signs. Again, figures are illustrative.

The Crossover Point

As a rough rule, a fractional combined holder is usually cheaper up to about two and a half to three days a week. Above that, a full-time employee typically costs about the same or less, and brings availability and continuity that a fractional holder serving other firms can’t always match. Our guide to how many days a week a fractional MLRO or compliance officer needs explains how to size the time commitment before comparing costs.

The crossover is a guide, not a rule. A firm with highly variable workloads, such as one approaching authorisation or going through a period of regulatory change, may prefer the flexibility of fractional time even at three days a week.

Costs Firms Often Forget

Comparing salary with day rate is only part of the picture. Other costs to budget for:

The Cost of Getting It Wrong

The biggest cost risk in a combined role is not the salary or the day rate. It’s the cost of an arrangement that is too thin for the firm. Backlogs, missed monitoring and weak financial crime controls can lead to remediation programmes, skilled person reviews and, in serious cases, enforcement. A section 166 remediation typically costs far more than the difference between a thin arrangement and an adequate one. The FCA’s financial crime pages and its published final notices show how seriously it treats under-resourced controls.

There’s a personal dimension too. Experienced candidates know that a combined role sized too tightly exposes them, and many will decline an arrangement they consider inadequate. A realistic budget widens the field of strong candidates.

Making the Budget Case to the Board

Boards approving a combined Senior Manager budget should see:

• the sizing exercise behind the time commitment;
• the cost of each realistic option, including employer costs and support;
• the support around the Senior Manager, such as analysts or outsourced checks;
• the arrangements for urgent matters and absence; and
• a date to review the arrangement against actual activity.

Recording this in the board minutes also gives the firm a clear rationale if the regulator asks how it decided on the arrangement.

Frequently Asked Questions

Is a combined holder paid more than a single-function holder?

Usually a little more than a single-function holder at the same firm, because the role needs two skill sets, but much less than two separate appointments.

Are fractional day rates negotiable?

Within reason. Rates reflect experience, sector and the firm’s risk profile. Monthly retainers often come with a modest discount on the equivalent day rate.

Can we start fractional and move to full-time later?

Yes, and many firms do. Some fractional holders are open to moving to a permanent role; others prefer to stay fractional, in which case the firm recruits a successor.

Does the FCA care what we pay?

Not directly. It cares whether the arrangement is adequate for the firm’s risks. A very low budget can be a sign that it isn’t.