Appointing a NED for an FCA-Regulated Firm

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

Appointing a non-executive director to an FCA-regulated firm involves everything an ordinary board appointment does — and a great deal more. Board roles at regulated firms frequently carry designated Senior Management Functions under the Senior Managers and Certification Regime, which means the appointee must be approved by the regulator, is assessed for fitness and propriety, and takes on direct personal accountability for their area of responsibility. The appointment must therefore satisfy both the board’s own judgement and the regulator’s requirements, and the candidate must bring regulatory credibility alongside governance capability. This guide sets out how to appoint a NED for an FCA-regulated firm: what the regime requires, what regulators expect, and how the process differs from an ordinary board appointment.

It is written for regulated firms, their boards and their nomination committees, and draws on NED Capital’s specialist work on FCA-regulated board appointments. Every search is led personally by Adrian Lawrence FCA.

The SMCR and Board Appointments

The Senior Managers and Certification Regime, operated by the Financial Conduct Authority and, for dual-regulated firms, the Prudential Regulation Authority, governs senior appointments at regulated firms. Under it, certain board roles are designated Senior Management Functions — the chair (SMF9), the chairs of the risk and audit committees (SMF10 and SMF11), the senior independent director (SMF14), and others depending on the firm. A person appointed to one of these functions must be pre-approved by the regulator before taking up the role, must satisfy the regulator’s fitness and propriety requirements, and holds direct personal responsibility for their function, with real accountability if things go wrong. This transforms the appointment: it is not enough for the board to be satisfied with a candidate; the regulator must approve them, and the candidate must be willing and able to carry the personal accountability the regime imposes. Our FCA-regulated board governance practice focuses specifically on these appointments.

What Regulators Expect

The regulator assesses a candidate for a Senior Management Function against fitness and propriety, which covers honesty, integrity and reputation; competence and capability for the specific role; and financial soundness. For board roles this means the candidate needs not only the governance qualities any board values but genuine regulatory credibility — a real understanding of the regime, of the firm’s regulatory obligations, and of the responsibilities the function carries. For committee-chair roles the expectations are specific: an audit committee chair needs the financial expertise to lead that committee, a risk committee chair the relevant risk experience. The regulator also expects the board as a whole to have appropriate expertise and independence. A candidate who is strong on general governance but weak on regulatory understanding, or who cannot satisfy the fitness and propriety assessment, will struggle in the process however impressive their broader record — which is why assessing for regulatory credibility is central to a regulated appointment.

Finding Candidates With Regulatory Credibility

The pool of candidates who combine strong board capability with genuine regulatory credibility is narrower than the general NED market, which makes the search for a regulated appointment more specialised. The right candidate typically brings prior experience of regulated firms, a working understanding of the SMCR and the relevant regulatory framework, and, often, experience of holding a Senior Management Function before. For specific committee roles, the relevant functional expertise — financial for audit, risk for the risk committee — must be genuine and demonstrable to the regulator. Identifying candidates with this combination, and assessing both their governance qualities and their regulatory credibility, calls for a search partner who understands the regime and the market of regulated-firm directors. A general board search that does not account for the regulatory dimension risks producing candidates who cannot satisfy the approval process.

The Approval Process and Timing

A regulated board appointment involves a step an ordinary one does not: regulatory approval, which takes time and must be factored into the timeline. The firm submits an application for the candidate’s approval to the relevant function, the regulator assesses fitness and propriety, and the candidate cannot take up the Senior Management Function until approval is granted. This process can take weeks or months, and the board should plan for it — particularly where an appointment is needed to fill a required function, since a gap in a mandatory role is itself a regulatory issue. Good preparation helps: a candidate whose fitness and propriety is clear, whose application is well-prepared, and who genuinely fits the role tends to move through approval more smoothly. Building the regulatory timeline into the appointment plan, rather than treating approval as an afterthought, is part of running a regulated appointment well.

How This Differs From an Ordinary Appointment

A regulated board appointment differs from an ordinary one in fundamental respects. The regulator, not just the board, must approve the candidate. The candidate is assessed for fitness and propriety and takes on direct personal accountability under the SMCR. Regulatory credibility is as essential as governance capability. The candidate pool is narrower and more specialised. And the timeline must accommodate a regulatory approval process. The governance qualities a good NED brings remain necessary, but they are no longer sufficient — the regulated context adds requirements that shape every stage of the appointment, from the specification through the search to the approval. Understanding and planning for that context is what distinguishes a well-run regulated appointment. Our pages on the SMF9 chair, SMF10/SMF11 risk and audit committee chair and SMF14 senior independent director cover the specific regulated roles.

Frequently Asked Questions

Which board roles are Senior Management Functions?

Depending on the firm, the chair (SMF9), the risk and audit committee chairs (SMF10 and SMF11), and the senior independent director (SMF14), among others. A person appointed to one of these must be pre-approved by the regulator before taking up the role.

What does the regulator assess?

Fitness and propriety — honesty, integrity and reputation; competence and capability for the specific role; and financial soundness. For committee roles, the relevant expertise (financial for audit, risk for the risk committee) must be genuine and demonstrable.

How long does regulatory approval take?

It can take weeks or months. The firm applies for the candidate’s approval, the regulator assesses fitness and propriety, and the candidate cannot take up the function until approved. This must be built into the appointment timeline, especially where a required function would otherwise be left vacant.

How is a regulated NED search different?

The candidate pool is narrower — it needs board capability plus genuine regulatory credibility — the regulator as well as the board must approve the appointment, and the timeline must accommodate approval. A search partner who understands the SMCR and the regulated-director market is important.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA.