The regulatory environment for FCA-regulated firm boards has changed substantially in the three years since Consumer Duty came into force, SMCR reached full maturity, and the FCA’s supervisory approach to individual accountability shifted from one of awareness-building to one of substantive assessment. Boards that governed regulated firms adequately in 2021 — producing the required documentation, making the required notifications, holding the required committee meetings — may be operating below the standard the FCA now expects without fully understanding why the gap has opened up.
The gap is not primarily about new rules. SMCR’s core provisions have been stable for years. It is about the FCA’s increasing willingness to look behind the documentation to assess whether the personal accountability the regime creates is genuine — whether the individuals who hold SMF designations understand what they are personally accountable for, whether their Statements of Responsibilities accurately describe their current oversight rather than the oversight they exercised three years ago, and whether the board as a whole has the competence to challenge management on the regulatory obligations that most directly affect the firm’s supervisory standing.
Against this background, Exec Capital — the executive search firm that specialises in senior appointments at FCA-regulated firms — has published a series of practical governance guides addressing the specific questions that boards and nomination committees most frequently need to answer. This article draws attention to the guides that are most relevant to regulated firm governance in the current environment and explains why each one matters more than boards typically assume.
The CEO’s Personal Accountability Under SMCR: More Than a Form A Process
Most regulated firm CEOs understand that they hold the SMF1 designation and that it required FCA approval before they could begin the role. Fewer have thought carefully about what the designation requires of them on an ongoing basis — and the distinction between understanding the approval process and understanding the personal accountability it creates is one that the FCA’s supervisory interactions are increasingly exposing.
The SMF1 holder is personally accountable, under the Duty of Responsibility, for the areas of the firm’s regulated activities described in their Statement of Responsibilities. If a regulatory failure occurs in any of those areas, the CEO must demonstrate they took reasonable steps to prevent it. Not that the failure was someone else’s responsibility. Not that they were unaware of it. That they actively took reasonable steps. This is a fundamentally different accountability model from the governance environment in which most CEOs have developed their careers, and the practical implications of the difference are not always adequately understood before the designation is accepted.
The supervisory relationship dimension is equally important. The CEO’s relationship with the FCA — how they engage in supervisory meetings, how they communicate about the firm’s regulatory position, how they respond to supervisory concerns — is one of the primary factors in how the FCA assesses the quality of the firm’s governance. A CEO who is unprepared for the substantive regulatory engagement that the SMF1 role requires will struggle to maintain the supervisory credibility that the firm needs. Exec Capital’s guide to the CEO as SMF1 at an FCA-regulated firm addresses both the governance substance and the supervisory relationship management that the role requires.
The Form A Process: Getting the Timeline Right Before It Controls You
The single most consistent mistake that regulated firm boards make in managing senior appointments is treating the Form A approval process as something that starts once a preferred candidate has been selected. By the time an offer has been made, accepted, a notice period served, and a start date agreed, the board frequently finds itself with a hard constraint — the new CEO, CRO or CFO needs to be in post on a specific date — and a regulatory process that cannot be accelerated to meet it.
The FCA’s statutory three-month assessment period is a ceiling, not a target. For straightforward appointments at well-supervised firms where the candidate has an established regulatory track record, approvals often come through in six to eight weeks. But for first-time SMF applicants, for appointments at firms with active supervisory concerns, or for candidates whose regulatory references contain material information that the FCA wishes to explore, the process can take the full three months and longer. At dual-regulated firms where both the FCA and PRA must approve an appointment, the combined process for a CEO or CRO can realistically take five to seven months.
The regulatory reference requirement adds further complexity. Every employer for whom the candidate has worked in a regulated capacity in the last six years must provide a regulatory reference meeting the FCA’s SYSC 22 requirements — covering all disciplinary matters and any information reasonably relevant to the FCA’s fitness and propriety assessment. References that omit relevant information expose the providing firm to enforcement risk. References that contain unexpected material require careful management before the Form A is submitted. Discovering this material after an offer has been made and accepted, with a start date already agreed, creates the kind of timeline and commercial pressure that leads to poor decisions. Exec Capital’s guide to the FCA Form A process covers every dimension of this, including how to integrate the approval timeline into the search process from the outset rather than treating it as a post-appointment administrative step.
Statements of Responsibilities: The Document Most Boards Have Never Properly Reviewed
When did your firm last review the Statements of Responsibilities for each of its SMF holders? Not sign off a new SoR at the point of a recent appointment — review the existing SoRs for accuracy against the individuals’ current responsibilities? For most regulated firms, the honest answer involves either significant uncertainty or a timeframe that would surprise the FCA.
The problem is structural. Statements of Responsibilities are produced at the point of Form A submission and then exist, in practice, as historical documents that describe the governance structure and scope of accountability that applied when each individual was appointed. As the firm’s structure evolves — as teams are reorganised, as new regulatory permissions are obtained, as the firm’s risk profile changes — the SoRs drift progressively out of alignment with the governance reality they are meant to describe. An SMF holder whose SoR has not been updated to reflect significant changes in their responsibilities is operating with a document that, in the event of a regulatory failure, will either overstate their accountability (creating personal risk) or understate it (creating a gap in the accountability map that the FCA will identify).
The FCA’s rules are clear: SoRs must be updated whenever there is a material change in an individual’s responsibilities. The practical implementation of this requirement varies dramatically. Boards with mature governance processes have a formal SoR review embedded in their annual governance calendar. Most others update SoRs only when they are forced to — when a new appointment makes the existing map obviously inconsistent. Exec Capital’s guide to Statements of Responsibilities best practice covers what the FCA expects, how to draft SoRs that are specific without being exhaustive, and how to maintain them as live governance documents rather than regulatory artefacts.
Board Succession Planning: What the FCA Actually Expects
The FCA expects regulated firms to have genuine succession plans for their senior management functions. Not a policy statement that succession planning is conducted as a matter of governance principle. Not an informal awareness among board members that certain executives are approaching retirement. Actual plans — identifying specific successor candidates, assessing their readiness, and considering how the firm would manage an unplanned vacancy in each designated function if one arose in the next six months.
Most regulated firm boards do not have this. The succession planning that exists typically covers the CEO and stops there, and even the CEO succession planning is frequently based on an assessment that was completed when the board last formally considered the question rather than a current, live evaluation. The FCA will ask about succession planning in supervisory meetings, and the quality of the board’s response is a factor in how it assesses the overall governance quality of the firm.
The practical timeline constraints make succession planning urgency real. A well-managed CEO succession at a mid-tier regulated firm takes five to six months from initiating the search to an approved replacement being in post. An unplanned CEO departure that is managed reactively — without a current candidate assessment, without pre-positioned interim coverage, without a prepared FCA communication strategy — will take longer and will produce a less good outcome. The cumulative governance and operational cost of managing an SMF succession badly is substantial. Exec Capital’s guide to SMCR and board succession planning sets out what genuine succession planning requires and how to build a framework that would hold up to FCA scrutiny.
Consumer Duty and the Annual Board Report
The Consumer Duty annual board report is one of the most revealing governance documents the FCA can request from a retail-facing regulated firm. Its quality tells the regulator more about the board’s Consumer Duty governance than almost any other single piece of documentation — whether the board has genuinely engaged with the management information underpinning the firm’s conduct performance, whether it has challenged management’s conclusions where the evidence does not support them, and whether the report represents a genuine accountability commitment or a procedural compliance exercise.
The FCA’s multi-firm reviews on Consumer Duty implementation have been consistent in their findings: a significant proportion of annual board reports are inadequate. They assert compliance without evidence, they acknowledge no areas of weakness despite the FCA’s explicit expectation that weaknesses exist at all firms of any complexity, and they show no evidence that the board has done anything more than approve a management-produced document. A board that produces such a report is not simply failing a compliance requirement — it is demonstrating a governance culture that the FCA will factor into its broader supervisory assessment of the firm.
The practical challenge for many retail-facing regulated firms is that the board does not have the specific Consumer Duty expertise to evaluate management’s assessment critically. This is partly a capability question and partly a board composition question — and both have hiring implications that nomination committees need to address. Exec Capital’s guide to the Consumer Duty annual board report covers the evidence requirements for each outcome area, how to structure the board’s review and challenge process, and what the report’s quality means for the next NED appointment brief.
Sector-Specific Governance: Insurance, Asset Management and Payment Institutions
The SMCR framework applies uniformly across FCA-regulated firm types, but its practical governance implications vary significantly by sector. Three sector-specific guides are particularly worth noting for boards operating in the relevant environments.
Insurance companies are subject to dual PRA and FCA regulation, and the Solvency II governance framework imposes requirements for board collective competence that go significantly beyond the general SMCR standards. The board must genuinely understand the firm’s actuarial assumptions, capital model, and reinsurance programme — not simply oversee the management team that manages them. Finding NEDs who combine this level of technical insurance knowledge with genuine independence and governance experience is one of the most demanding recruitment challenges in regulated financial services. Exec Capital’s guide to insurance board appointments under SMCR addresses the dual approval process, Solvency II board governance requirements, the talent pool for insurance NEDs, and Lloyd’s of London considerations.
Asset managers face a different set of governance pressures — centred on conflicts of interest between the firm’s commercial interests and fund investors’ interests, MIFIDPRU remuneration requirements, and Consumer Duty obligations for retail-facing products. Exec Capital’s guide to asset management board appointments covers the regulatory framework, board independence requirements, investment trust board governance, and the specific challenges of succession planning at manager-centric boutiques.
Payment institutions navigating the post-authorisation growth phase face a specific leadership challenge: the profile that was appropriate to win FCA authorisation is often not the profile needed to scale a regulated payments business while managing the FCA’s intensifying financial crime and safeguarding oversight. The guide to payment institution senior hiring covers the MLRO’s specific role in the payments sector, the CFO’s safeguarding accountability, and how to structure the leadership team in the critical period after authorisation.
Two Further Guides Worth Reading
For smaller regulated firms where a single individual holds multiple SMF designations, the governance reality of combined arrangements — which combinations are permitted, what the FCA assesses, when separation becomes necessary — is practically important and often underserved by generic SMCR guidance. Exec Capital’s guide to the dual SMF holder at smaller regulated firms addresses these questions specifically for growth-stage businesses where the formal governance structure is still developing alongside the firm’s commercial ambitions.
And for boards making their next Remuneration Committee Chair appointment, the SMF12 guide covers what the FCA’s remuneration code requirements actually demand of the Chair — technically and in terms of governance independence — and why this appointment deserves more rigorous attention from nomination committees than it typically receives. Exec Capital’s guide to the SMF12 Remuneration Committee Chair covers the full scope of the designation’s requirements and what strong candidates look like.
Exec Capital places senior executives, Chairs and NEDs at FCA-regulated firms across the full range of firm types and SMF designations — permanent, interim and fractional. Adrian Lawrence FCA leads every regulated firm search personally. Contact: 0203 834 9616 or visit execcapital.co.uk/fca.
