Fractional Compliance Officers: The Smarter Way to Build FCA Compliance Leadership

Welcome to the FD Capital Podcast, where we explore finance leadership, fractional executives and the changing needs of businesses across the UK.

Today we're looking at an increasingly important option for FCA-regulated firms: fractional compliance officers.

Every regulated business needs effective compliance leadership. But does every firm really need a full-time Head of Compliance or Chief Compliance Officer?

That's the thinking behind fractional compliance.

What Is a Fractional Compliance Officer?

A fractional compliance officer is an experienced compliance professional who works for a firm on a part-time, ongoing basis.

Why Is the Model Becoming More Attractive?

There are several reasons.

The first is cost.

A small regulated firm may need the expertise of a senior compliance professional but may not have enough work to justify a six-figure full-time appointment.

The second is access to experience.

A fractional professional may have previously held senior compliance or MLRO positions across several regulated businesses. A smaller firm can therefore gain access to experience that would otherwise be difficult to recruit on a full-time basis.

The third is flexibility.

A business might initially require one day a week. As it grows, adds permissions, launches products or becomes more complex, the commitment can increase.

Fractional, Outsourced and Interim Are Not the Same

These terms are sometimes used interchangeably, but they can describe quite different arrangements.

Fractional generally means a named senior individual working for the firm on an ongoing part-time basis.

Outsourced compliance usually means the firm engages an external consultancy to provide compliance services, potentially using several members of its team.

Interim normally means an experienced individual comes into the business for a defined period, often to cover a vacancy, remediation programme or transition.

The distinction matters particularly where an SMF is involved.

An SMF is a function performed by an individual. The firm needs to understand exactly who is responsible, what authority they have and whether they have sufficient time and resources to perform the role properly.

SMF16 and SMF17

Two particularly relevant functions are SMF16 Compliance Oversight and SMF17 Money Laundering Reporting.

For smaller firms, it may be possible for one appropriately qualified individual to perform both functions, depending on the firm's circumstances.

This can make a fractional model particularly attractive.

The individual needs sufficient time and support to carry out the responsibilities effectively.

How Many Days a Week Do You Need?

There is no universal answer.

A small directly authorised IFA with relatively straightforward activities might require considerably less senior compliance time than a rapidly growing payments or investment business.

A boutique investment manager might need one or two days each week.

A newly authorised lender or payments business may need substantially more support while its systems and controls mature.

A firm that has suddenly lost its Head of Compliance might also use a fractional professional as a bridge while recruiting a permanent replacement.

The important question is not:

"How cheaply can we cover compliance?"

It is:

"How much senior compliance resource does our business genuinely require?"

That is a much better starting point.

The exact responsibilities should be clearly defined in the firm's governance arrangements and, where applicable, the individual's Statement of Responsibilities.

The Importance of Sector Experience

One of the biggest mistakes a regulated business can make is assuming that any experienced compliance professional will automatically be suitable.

Compliance is highly sector-specific.

An SMF16 working for an IFA needs to understand the regulatory environment around financial advice, suitability and the firm's particular business model.

A compliance leader for a payments firm needs different experience.

An investment manager will have different requirements again.

The best fractional appointment is therefore usually someone who has already worked in a business with a similar regulatory profile.

That allows them to contribute quickly rather than spending months learning the firm's sector from scratch.

What Makes a Good Fractional Compliance Leader?

There are several characteristics to look for.

Relevant SMF experience is highly valuable, particularly where the individual will be expected to hold an SMF16 or SMF17 function.

Sector experience is equally important. A candidate should understand the regulatory environment in which the firm actually operates.

Board presence matters too. A fractional compliance officer may only be in the business one day a week, but they still need the confidence to challenge directors when necessary.

Efficiency is essential. Someone working fractionally has limited time and needs to prioritise the highest-risk issues.

And finally, capacity and conflicts need to be considered.

Many fractional compliance professionals work with several firms. That can be a strength because they bring broad experience, but the firm needs confidence that the individual has enough capacity to perform its particular role effectively.

The Financial Case

The economics can be compelling.

A firm might pay a senior fractional compliance professional a day rate for one or two days a week rather than employing a full-time executive with salary, pension, employer National Insurance, bonus and other employment costs.

FD Capital's current fractional compliance recruitment market includes senior professionals working at approximately £600–£1,100 per day depending on seniority, sector and complexity. Actual rates vary significantly by individual and requirement.

That means a smaller regulated business can potentially obtain senior compliance expertise for a fraction of the cost of a full-time appointment.

But the financial calculation should always come second to determining what level of compliance resource the firm actually needs.

When Should a Firm Consider Going Full-Time?

Fractional compliance isn't necessarily the end state.

As a business grows, there may come a point where a full-time Head of Compliance or Chief Compliance Officer makes more sense.

Potential triggers include:

• rapidly increasing customer numbers;
• additional regulatory permissions;
• new products or business lines;
• increased financial crime exposure;
• growing compliance monitoring requirements;
• increased FCA engagement;
• a move towards greater organisational complexity;
• or simply the point where the fractional professional is consistently working beyond the agreed commitment.

The fractional model can therefore act as a bridge between having too little senior compliance resource and building a full-time compliance function.

How FD Capital Helps

FD Capital brings the fractional model that has traditionally been associated with Finance Directors and CFOs into the wider regulated business environment.

We recruit fractional Heads of Compliance, Compliance Officers, MLROs and senior compliance professionals for FCA-regulated businesses.

Our approach starts with understanding the firm's regulatory perimeter, permissions, activities, size, risk profile and the support already available internally.

We then identify candidates with the relevant sector and regulatory experience rather than simply searching for anyone with "compliance" on their CV.

For fractional appointments, FD Capital says it aims to provide a shortlist within 48 to 72 hours of receiving a full brief, with the subsequent appointment and regulatory approval process depending on the individual and circumstances.

Fractional compliance can provide a more flexible alternative.

Find Out More

If your business needs senior compliance expertise but isn't ready for a full-time appointment, FD Capital can help you explore the fractional model.

We've created a dedicated guide covering fractional compliance officer recruitment, including SMF16, SMF17, the difference between fractional and outsourced compliance, typical time commitments and the recruitment process.

You can read it here:

Fractional Compliance Officer Recruitment

If you're considering recruiting a fractional Head of Compliance, SMF16, MLRO or combined compliance and financial crime leader, the team at FD Capital can discuss your requirements and the level of support your firm actually needs.

For many smaller FCA-regulated firms, that could be a highly practical and commercially sensible model.

If your firm needs senior compliance expertise without immediately committing to a full-time appointment, take a look at FD Capital's Fractional Compliance Officer Recruitment service.

Thank you for listening to the FD Capital Podcast. Join us next time as we explore another issue affecting finance, compliance and senior leadership in UK businesses.