Is It Allowed?

In principle, yes. There is no blanket rule that stops a managing director from also being responsible for compliance. What the rules require is that a firm has adequate arrangements to comply with its obligations, and that those arrangements are proportionate to its size, nature and complexity.

The detail depends on the type of firm:

Our guides on holding more than one Senior Manager Function and who can be your MLRO or compliance officer cover the wider rules on combining roles.

Why Firms Do It

The reasons are understandable:

• Cost. A small firm may not be able to justify a dedicated compliance salary, especially before it is profitable.
• Knowledge. The managing director often knows the business, its clients and its risks better than anyone.
• Background. Some managing directors come from compliance or risk roles and are genuinely qualified to do the job.
• History. The arrangement often starts when the firm is tiny and simply never gets revisited as the business grows.

The Problem: Marking Your Own Homework

The core difficulty is independence. The managing director runs the business: setting targets, signing off products, approving marketing, managing advisers and making commercial decisions. The compliance officer’s job is to challenge those same decisions and check whether the business is meeting its obligations. When one person does both, there is no one to challenge the person making the decisions.

That shows up in practical ways:

• Financial promotions are approved by the person who wants them published.
• Complaints and breaches are assessed by the person whose decisions may have caused them.
• Compliance monitoring tests processes the managing director designed and runs, so findings are less likely to be objective. Our guide, Compliance Monitoring Explained, explains why independence matters to the whole programme.
• Time runs short. When the business is busy, compliance is the work that slips.
• Board reporting becomes the managing director reporting on themselves.

None of this means the managing director is acting in bad faith. It means the structure removes the check that compliance is supposed to provide.

What the FCA Looks For

When the regulator sees a managing director also responsible for compliance, it typically asks:

• Is it proportionate? Does the size, complexity and risk of the business justify combining the roles?
• Does the person have the competence? Do they have real compliance experience and knowledge of the rules that apply to the firm, not just general business experience?
• Do they have the time? Can they realistically run the business and the compliance function?
• How is the conflict managed? What independent checks exist, such as external compliance support, outsourced monitoring or a non-executive director with oversight?
• Is there a plan? At what point will the firm appoint a separate compliance officer?

At authorisation, these questions are asked up front. For payment and e-money institutions in particular, a managing director who is also the compliance lead and the MLRO is a common reason for the FCA to ask for more information. Our page on the people needed for payments and e-money authorisation explains what the regulator usually expects to see.

Making the Arrangement Work

If the managing director is to remain responsible for compliance, the firm can strengthen the arrangement considerably:

These measures don’t remove the conflict, but they show the regulator that the firm has recognised it and taken reasonable steps to manage it.

A Common Middle Path: A Fractional Compliance Officer

For many small firms, the best answer is neither the managing director doing everything nor a full-time compliance hire. It is an experienced, approved compliance officer working a set number of days a month. A fractional compliance officer provides independence and expertise at a cost proportionate to the firm’s size, and frees the managing director to run the business.

In smaller firms, the same person often holds the MLRO role too. A combined compliance officer and MLRO, working fractionally, gives a small firm both of its key control functions from one experienced individual. Our guides on fractional or full-time compliance officers and how many days a week the role needs help with sizing the arrangement.

Signs It Is Time to Separate the Roles

Even where combining the roles was sensible at the start, firms outgrow it. The warning signs include:

• the firm is applying for authorisation, a variation of permission or a move to a higher regulatory tier;
• client numbers, transaction volumes or product range have grown significantly;
• compliance monitoring is behind schedule or has been dropped;
• the firm has had a regulatory query, complaint trend or breach that exposed gaps;
• the managing director is spending less than the role needs on compliance work;
• the board or an investor has questioned the arrangement; or
• the firm is preparing for sale or investment, where buyers will scrutinise governance.

If several apply, the arrangement is probably costing the firm more in risk than it saves in salary. Our article on when to split a combined SMF16 and SMF17 role covers a similar decision for firms where one person holds both control functions.

Handing Over Compliance

When a firm does bring in a separate compliance officer, the handover matters. The managing director should expect to share the compliance history, open issues, monitoring results, regulatory correspondence and any known gaps. A good incoming compliance officer will want an honest picture rather than a reassuring one, and will use the first months to review the framework and agree priorities. Our guide to the first 90 days for a new MLRO or compliance officer sets out what that period should look like.

If the new compliance officer will hold the SMF16 function, the firm will need to apply for the regulator’s approval, and the managing director’s own Statement of Responsibilities will need updating to remove the compliance role. Our page on compliance officer recruitment (SMF16) explains how the search and approval work.

Frequently Asked Questions

Can the managing director be the compliance officer?

Often, yes, at small firms where the arrangement is proportionate and the person has the competence and time. The firm must manage the conflict between running the business and overseeing compliance, and should expect the regulator to ask how it does so.

Can the managing director also be the MLRO?

Yes, and at very small firms it is common. But the same concerns about time and independence apply, and the combination of managing director, compliance officer and MLRO in one person is likely to attract scrutiny, particularly at authorisation.

Does a small payment institution need a separate compliance officer?

Not necessarily. Small payment institutions have lighter requirements, and the owner or director often covers compliance. As the firm grows, or if it applies for full authorisation, a separate compliance lead becomes much more important.

What is the cheapest way to separate the roles?

For most small firms, a fractional compliance officer working a few days a month. It gives the firm independent, experienced oversight without a full-time salary.

Will the FCA reject an application if the MD is the compliance officer?

Not automatically, but it is a common reason for questions and delays. Firms that can show strong mitigating measures, or that appoint a separate compliance lead before applying, tend to have a smoother process.