FCA Regulated Board Governance

A board seat in a regulated financial services firm is not the same as a board seat elsewhere. The duties under the Companies Act still apply, but so does a second layer of personal accountability under the Senior Managers and Certification Regime (SMCR). The chair and the chairs of the main board committees usually hold Senior Manager Functions (SMFs) and must be approved by the regulator before they take their seats. They carry a Statement of Responsibilities, they are bound by the Conduct Rules, and they can be held personally accountable if things go wrong in their area.

This hub brings together our guidance and services on FCA-regulated board governance. It explains the NED-tier SMF designations, how the regime differs between dual-regulated and FCA solo-regulated firms, the prescribed responsibilities and Consumer Duty expectations that fall to non-executives, and how we run board searches for regulated firms. If you are about to make an appointment, start with our practical guide to appointing a NED for an FCA-regulated firm.

Why Regulated Boards Are Different

The Senior Managers and Certification Regime was introduced for banks in 2016 and extended to insurers and then to almost all FCA solo-regulated firms in December 2019. Its aim is simple: make it clear who is responsible for what, so that individuals, not just firms, can be held to account.

For non-executives, that has three practical consequences. First, the most senior board roles need regulatory approval before the person starts, so the timetable for an appointment has to allow for the application. Second, the person appointed must be fit and proper, and the firm must be able to show it has assessed this, including through regulatory references from previous employers. Third, the role comes with a defined scope of personal responsibility, set out in a Statement of Responsibilities, and with the duty of responsibility in the Financial Services and Markets Act: a senior manager who fails to take reasonable steps to prevent a breach in their area can face enforcement action.

None of this changes the core job of a non-executive director, which is still independent oversight and constructive challenge. It does mean that the board needs people who understand the regime and are comfortable carrying personal regulatory accountability. Our article on why non-executive directors are increasingly targeted by regulators looks at how that accountability has played out.

The NED-Tier Senior Manager Functions

Six Senior Manager Functions are designed for non-executives. Which of them apply to a particular firm depends on its size and how it is regulated.

SMF9: Chair of the Governing Body. The most senior non-executive designation. The chair is accountable for leading the board and for its effectiveness, including the way it oversees the firm’s culture, risk and compliance. See our SMF9 non-executive chair page.

SMF10: Chair of the Risk Committee. Responsible for leading the board’s oversight of risk, including the risk appetite framework and the work of the chief risk officer.

SMF11: Chair of the Audit Committee. Responsible for overseeing the integrity of financial reporting, the internal audit function and the relationship with the external auditor. Both committee chair roles are covered on our SMF10 and SMF11 risk and audit committee chair page.

SMF12: Chair of the Remuneration Committee. Responsible for overseeing the remuneration policy and its compliance with the applicable remuneration code.

SMF13: Chair of the Nomination Committee. Responsible for overseeing board composition, succession and the process for appointing senior managers.

SMF14: Senior Independent Director. The independent sounding board for the chair and an alternative route for other directors, shareholders and the regulator. See our SMF14 senior independent director page, and our general guide to what a senior independent director does.

For a fuller overview of all six designations, the fit and proper test and the independence criteria, see our FCA SMCR INED appointments page.

SMF7: The Group Entity Senior Manager

Not every person with regulatory influence over a firm sits on its board. SMF7, the Group Entity Senior Manager function, applies to someone employed elsewhere in the group, usually at the parent company, who exercises significant influence over the regulated firm’s affairs. It is an executive function rather than a non-executive one, but it matters to board composition in groups. A director of a parent company who effectively directs the UK firm may need SMF7 approval, and the independence of the firm’s own non-executives has to be judged against those group relationships. This is a common issue for the UK subsidiaries and branches of overseas groups, where the line between group oversight and local board independence needs careful thought. Our guide to how multinational boards handle conflicting regulations covers the wider picture.

Dual-Regulated and FCA Solo-Regulated Firms

The regime works differently depending on who supervises the firm.

Dual-regulated firms are those supervised by both the Prudential Regulation Authority and the FCA: banks, building societies, credit unions, insurers and the largest investment firms. In these firms, most of the NED-tier SMFs are designated by the PRA, with the FCA designating others, and applications are coordinated between the two regulators. Non-executive directors who do not hold an SMF are known as notified NEDs. They are not approved in advance, but the firm must notify the regulators, and they are subject to the Conduct Rules. The Bank of England sets out the PRA’s approach on its strengthening accountability pages.

FCA solo-regulated firms are split into three tiers. Limited scope firms have a light version of the regime. Core firms, which are the majority, need an approved chair (SMF9) where they have one, but not the committee chair functions. Enhanced firms, the largest and most complex solo-regulated firms, apply the full set of NED-tier SMFs where they have the relevant committees, along with extra requirements such as a management responsibilities map. Non-executives in solo-regulated firms who do not hold an SMF are still subject to the Conduct Rules.

Knowing which tier a firm sits in is the first step in any regulated board appointment, because it decides which roles need approval and therefore how long the process will take. The regime is also under review: the government and the regulators have consulted on reforms to make it simpler, so it is worth checking the current rules before relying on any summary, including this one.

Prescribed Responsibilities and the Non-Executive

As well as holding an SMF, a non-executive may be allocated one or more prescribed responsibilities. These are specific responsibilities that the regulators require firms to give to a named senior manager. In larger firms, some of them sit naturally with non-executives. The chair of the audit committee is typically responsible for overseeing the independence of internal audit, and the chair of the risk committee for overseeing the risk function. In banks and insurers, the whistleblowers’ champion must be a non-executive director, often the senior independent director or another committee chair.

Prescribed responsibilities are recorded in the Statement of Responsibilities and, for larger firms, the management responsibilities map. For the individual, the practical point is that each responsibility comes with a duty to take reasonable steps. A non-executive who takes one on needs to understand what oversight is expected and how they will evidence it.

Consumer Duty and the Board Champion

The Consumer Duty came into force in July 2023 for open products and in July 2024 for closed products. It requires firms to deliver good outcomes for retail customers, and it puts the board at the centre of that. The board must review and approve an assessment, at least annually, of whether the firm is delivering good outcomes and what it will do where it is not.

The FCA expects firms, where appropriate, to appoint a Consumer Duty board champion: usually the chair or a non-executive director who helps the chair and the CEO make sure the Duty is discussed regularly and raised in all relevant board discussions. This is an expectation rather than a formal SMF, but it is now a familiar part of regulated board life. Our article on how non-executive directors should oversee Consumer Duty explains the oversight questions the board should be asking.

Assurance: What a Regulated Board Relies On

A regulated board cannot see everything for itself, so much of its work is about assurance. Non-executives rely on the risk, compliance and internal audit functions to tell them whether controls are working and whether the firm is meeting its obligations. Two of our guides cover this in practice: the three lines of defence, which explains how the functions fit together, and what NEDs need to know about compliance monitoring. Together they set out the reports a non-executive should expect to see and how to challenge them.

Regulated Firm Types We Recruit For

The SMCR applies across financial services, but the board needs of each kind of firm differ. Our service pages cover the main types:

• Financial services NED recruitment: banks, insurers, asset and wealth managers, consumer credit firms and payment institutions.
• Fintech NED recruitment: e-money and payment firms, digital lenders and other technology-led regulated businesses.
• Investment trust board appointments: all-non-executive boards overseeing listed investment companies.
• Independent non-executive director recruitment across regulated and unregulated sectors.

How We Run Regulated Board Searches

Searches for regulated firms follow our usual retained process, described in the NED recruitment process, with the regulatory work built in from the start rather than added at the end.

At the brief. We confirm which SMF the role carries, whether the firm is dual-regulated or solo-regulated and which tier it sits in, which prescribed responsibilities the person may hold and what independence means given the firm’s group structure. That shapes the specification and the timetable.

During the search. We assess candidates against the fit and proper criteria as well as the board’s needs, and we ask about regulatory history and potential conflicts early. Issues that could affect approval are much easier to deal with before a shortlist than after an offer.

At appointment. We support the firm through the approval application, the regulatory references and the drafting of the Statement of Responsibilities, so that the person the board chooses can be approved and take up the role.

Searches are run by our senior search team under founder Adrian Lawrence FCA. NED Capital is part of FD Capital Group, five specialist firms with a shared network. Our sister firm SMF Capital specialises in senior manager function appointments across the regime, FD Capital recruits finance and compliance leaders, and Exec Capital recruits executive directors, so we can help a regulated firm across its executive and non-executive senior managers.

Frequently Asked Questions

Does every non-executive director in a regulated firm need FCA approval?
No. Approval is needed for non-executives who hold a Senior Manager Function, such as the chair or a committee chair in firms where those functions apply. Other non-executives are not approved in advance, but in banks and insurers they must be notified to the regulators, and in all firms they are subject to the Conduct Rules.

Which SMFs apply to a core FCA solo-regulated firm?
Among the non-executive functions, a core firm needs an approved chair (SMF9) if it has one. The committee chair functions and the senior independent director function apply to enhanced firms and to dual-regulated firms where the relevant roles exist.

How long does regulatory approval take?
The regulators have a statutory period to decide a complete application, which can run to several months, and an incomplete application takes longer. Firms should build the approval period into the appointment timetable and prepare the application carefully, because the candidate cannot perform the function until approval is granted.

What is the duty of responsibility?
It is a provision of the Financial Services and Markets Act that allows the regulators to take action against a senior manager if the firm breaches a requirement in their area of responsibility and they did not take reasonable steps to prevent it. It applies to non-executives who hold an SMF.

Who should be the Consumer Duty board champion?
The FCA expects firms, where appropriate, to appoint the chair or a non-executive director as board champion. The champion helps make sure the Duty is discussed regularly and raised in all relevant board decisions.

Can you help with executive senior managers as well as NEDs?
Yes. Through FD Capital Group we cover executive and non-executive senior manager roles, including compliance, MLRO and finance functions, as well as chairs, committee chairs and independent directors.