FCA SMCR INED

Independent Directors for Regulated Firm Boards

NED Capital places independent non-executive directors (INEDs) with FCA-authorised and PRA-regulated firms across UK financial services, from consumer credit firms, payment institutions and wealth managers to insurers, banks and building societies. Under the Senior Managers and Certification Regime (SMCR), the most senior non-executive roles on a regulated firm’s board are Senior Manager Functions that need regulatory approval before the director can take up the role. That makes these appointments more involved than the equivalent appointment to an unregulated board.

Searches are run by our senior search team, each with at least ten years in senior-level recruitment, under founder Adrian Lawrence FCA, a Fellow of the ICAEW. We assess SMCR suitability, regulatory independence and each candidate’s fitness and propriety before shortlisting.

For financial services NED recruitment more generally, see our financial services NED recruitment page and our FCA-regulated board governance hub. This page covers the six board-level SMF designations and links to dedicated pages for the most commonly appointed roles. Call 0203 137 2496 or email recruitment@nedcapital.co.uk to discuss a regulated firm INED appointment.

The Six Board-Level SMF Designations

The SMCR includes six Senior Manager Functions held by non-executive directors. Each one carries personal accountability: the person holding it is answerable to the regulator for the area of governance it covers. Unlike the executive functions such as SMF1 (Chief Executive) and SMF3 (Executive Director), these governing functions exist to provide independent oversight of management.

Which of these functions a firm needs depends on its regulatory category. For FCA solo-regulated firms, Core firms with a chair of the governing body need an approved SMF9, while Enhanced firms typically need the full set of committee chair and senior independent director functions. Limited scope firms have a narrower set of senior manager functions. The FCA’s guidance on how solo-regulated firms are categorised sets out the detail. For banks, building societies and insurers, the PRA’s rules also apply; the Bank of England’s pages on strengthening accountability cover the PRA’s approach. Non-executive directors who do not hold one of these functions do not need approval, though they remain subject to the FCA Code of Conduct.

SMF9 — Chair of the Governing Body. The most senior non-executive designation: the chair of the board. The SMF9 holder is accountable for leading the board and its governance, including how the board oversees the firm’s compliance with its regulatory obligations. For PRA-regulated firms the expectations of the chair are particularly demanding; the chair must be independent of management and show active governance leadership. See our SMF9 non-executive chair page.

SMF10 — Chair of the Risk Committee. The independent director who chairs the board’s risk committee, accountable for the board’s oversight of the firm’s risk appetite, its risk management framework and the work of the Chief Risk Officer. See our SMF10 and SMF11 appointments page.

SMF11 — Chair of the Audit Committee. The independent director who chairs the audit committee, accountable for overseeing the integrity of financial reporting, the external audit relationship and the effectiveness of internal audit. Regulators expect recent and relevant financial experience. See our SMF10 and SMF11 appointments page and our wider audit committee chair recruitment service.

SMF12 — Chair of the Remuneration Committee. The independent director who chairs the remuneration committee, accountable for the firm’s remuneration policy and its compliance with the applicable remuneration codes, such as the FCA’s SYSC 19D Dual-regulated firms Remuneration Code and other SYSC 19 codes depending on the firm type. The SMF12 holder must make sure pay policy supports sound risk management. See our remuneration committee chair recruitment page.

SMF13 — Chair of the Nomination Committee. The independent director who chairs the nomination committee, accountable for overseeing board composition, succession and the process for appointing directors and senior managers. Our guide to how a nomination committee chooses new directors explains the role.

SMF14 — Senior Independent Director. The SID provides a channel for shareholders, other directors and the regulator to raise concerns outside the normal chair and executive route, and leads the evaluation of the chair’s performance. See our SMF14 senior independent director page and our explainer on what a senior independent director does.

Fitness and Propriety Requirements for INEDs

Anyone proposed for an SMF role, including the board-level designations, must be assessed as fit and proper by the firm before the firm applies for approval. Applications are made through FCA Connect, and the FCA explains its process in its guidance on applying for a senior management function and how it assesses applications. The criteria are set out in the FIT sourcebook of the FCA Handbook and cover three areas.

Honesty, integrity and reputation. The candidate must not have a history that raises concerns about their suitability for a position of trust in a regulated firm. Relevant matters include regulatory censure, criminal convictions, civil judgments, dismissals and other circumstances that reflect on character. Any previous regulatory action, in the UK or overseas, is particularly material.

Competence and capability. The candidate must have the skills, knowledge and experience to perform the specific function. An SMF11 candidate, for example, needs enough financial expertise to oversee the firm’s financial reporting and external audit credibly.

Financial soundness. The candidate must not have outstanding judgment debts, bankruptcy or arrangements with creditors that raise concerns about their financial responsibility.

We assess every regulated firm INED candidate against all three areas before shortlisting, and advise firms on each candidate’s position before the application is made. Where the application involves any complexity, such as overseas regulatory history, we can introduce specialist regulatory counsel. The approval process takes time: the regulator has up to three months to decide a complete application, so firms should plan board appointments well ahead. Our guide on appointing a NED for an FCA-regulated firm covers planning in more detail.

Independence Requirements for Regulated Firm INEDs

Independence expectations for INEDs in regulated firms align broadly with the UK Corporate Governance Code, with additional considerations specific to the regulated context. Our explainer on the difference between an independent and a non-executive director covers the basics. The key tests are:

Independence from management. No current or recent employment with the firm or group, no material business relationship with it and no close family ties to its senior management or advisers.

Independence from significant shareholders. Where a firm has a major shareholder, such as a parent company, a private equity investor or a founding family, the INED must be genuinely independent of that shareholder and not represent its interests on the board.

Independence from advisers. The INED should not have a material current or recent relationship with the firm’s auditors, lawyers or other professional advisers.

For PRA-regulated firms the expectations are especially rigorous: the PRA treats genuine independence as fundamental for INEDs at banks, building societies and insurers, not as a box to tick.

Our SMCR INED Search Process

Our regulated firm INED searches build SMCR assessment into every stage, alongside the general method described in our guide to the NED recruitment process.

1. SMF designation assessment. Before the search starts, we confirm which SMF designation or designations the appointment requires, and whether a combined role, such as one director holding both SMF11 and SMF14, suits the firm’s governance structure.

2. SMCR pre-screening. Every candidate we approach is pre-screened for SMF suitability, independence and fitness and propriety. We do not present candidates who have not passed this screening.

3. Shortlist with regulatory assessment. Each shortlisted candidate comes with a regulatory assessment covering their SMF history, independence and our view of their fitness and propriety.

4. Application support. We advise on the information that supports the firm’s application for approval and on the timetable, so the director can start as soon as approval is granted.

We recruit INEDs for fintech and payments firms, investment trusts, insurers, wealth and asset managers, and consumer credit firms. Our article on hiring NEDs for financial services boards covers sector-specific considerations.

Frequently Asked Questions

Does every NED at a regulated firm need FCA approval?
No. Only directors performing one of the Senior Manager Functions, such as chair, committee chair or senior independent director in firms where those functions apply, need approval. Other non-executive directors remain subject to the Conduct Rules but are not approved as senior managers.

Can one person hold more than one SMF designation?
Yes. It is common for an independent director to hold two functions, such as audit committee chair and senior independent director, provided they have the time and expertise and the combination suits the board’s structure.

How long does it take to appoint a regulated firm INED?
Search to shortlist typically takes two to three weeks from an agreed brief. Regulatory approval then adds time; the regulator can take up to three months to decide a complete application, so firms should allow for this when planning succession.

Do you recruit executive SMF roles too?
Executive and compliance SMF roles, such as SMF16 and SMF17, are handled by our sister brand SMF Capital.