SMF Authorisation Support: Building the Right Senior Management Team Before FCA Submission

Welcome to the SMF Capital Podcast.

Today we're looking at an issue that can make a significant difference to the FCA authorisation process: when and how you build your Senior Management Function team.

If you're a fintech, payments business, cryptoasset firm or another business preparing for FCA authorisation, it's tempting to concentrate first on the business plan, technology, commercial proposition and customer proposition — and then deal with the senior management structure towards the end.

But that can create a problem.

Because FCA authorisation isn't simply about whether your business model looks good on paper. The FCA also needs to understand who is actually going to run the regulated business, who is responsible for key functions, and whether those individuals have the appropriate experience and accountability.

That's where SMF Capital's authorisation support comes in.

Why SMF planning needs to start early

One of the biggest mistakes we see is treating SMF recruitment as something that happens immediately before an application is submitted.

In reality, the senior management structure should be considered much earlier.

You need to understand which SMF designations apply to your particular firm, which individuals will take responsibility for key functions, how those responsibilities fit together and whether the proposed structure is proportionate to the firm's activities and regulatory permissions.

For many firms, this will include functions such as SMF16 — Compliance Oversight and SMF17 — Money Laundering Reporting Officer, depending on the firm's regulatory structure and activities.

And for businesses operating in areas such as payments, e-money or cryptoassets, the quality and relevance of that experience can be particularly important.

The question isn't simply:

"Can we find somebody with an SMF16 or SMF17 title?"

The more important question is:

"Does this person have the right experience for our particular business, risk profile and regulatory environment?"

That's a very different recruitment exercise.

The importance of sequencing

Let's take a typical example.

Imagine you're building a fintech business and you've already recruited your commercial leadership team.

You've got the technology team.

You've developed your product.

You've prepared your business plan.

You're getting closer to submitting your FCA application.

Then somebody asks:

"Who is our SMF16?"

And:

"Who is our SMF17?"

If the answer is that you're going to start looking for those people now, you may have left an important part of the process rather late.

Instead, the better approach is to work backwards from the intended authorisation timetable.

What is the target submission date?

Which SMF roles are required?

Which individuals need to be identified?

Which people need to be permanent appointments?

Where could fractional or interim expertise provide appropriate cover?

And how should the responsibilities of those individuals be reflected in the governance documentation?

That sequencing is one of the key areas where specialist SMF recruitment support can add value.

Finding the right SMF16

Let's start with Compliance Oversight.

An SMF16 isn't simply a compliance job with a more senior title.

The individual needs to be appropriate for the firm's business model and regulatory permissions.

For example, the compliance requirements and risks associated with a payments business can be very different from those of another type of regulated firm.

So the recruitment process needs to look at the individual's actual experience.

Have they worked in a comparable regulated environment?

Have they dealt with the types of regulatory permissions you're applying for?

Do they understand the risks inherent in your business model?

And can they operate effectively within the governance structure you're proposing?

These are much more useful questions than simply searching a database for somebody whose CV contains the words "SMF16".

Finding the right SMF17

The same principle applies to the Money Laundering Reporting Officer.

For businesses with significant financial crime exposure, particularly payments, e-money and cryptoasset businesses, experience needs to be relevant to the firm's actual risk environment.

A generic AML background isn't necessarily the same thing as experience managing financial crime risk within a comparable regulated business.

The objective should therefore be to identify an SMF17 candidate whose experience makes sense in the context of the application you're putting in front of the FCA.

Again, it's about fit rather than simply filling a box.

What about the board?

The SMF structure doesn't exist in isolation.

Depending on the firm's size, activities and regulatory requirements, the wider board and governance structure may also need careful consideration.

That can include the chair, independent non-executive directors and other senior appointments.

This is particularly important where the business is moving from an entrepreneurial start-up structure towards a properly governed regulated firm.

The question becomes:

Does the proposed board structure demonstrate that the firm understands the responsibilities that come with being regulated?

And if an experienced board-level appointment is required, that appointment may need to happen well before the authorisation submission rather than being left until after authorisation.

Statements of Responsibilities

Another area that deserves attention is the Statement of Responsibilities.

These shouldn't simply be treated as documents that need to be completed because the application form requires them.

They should reflect the actual governance structure of the business.

Who is responsible for what?

Where do responsibilities begin and end?

How do the different SMF roles interact?

Who has oversight?

And does the overall structure make sense?

A generic template can produce a document that technically looks complete but doesn't necessarily demonstrate that the firm's governance has been properly thought through.

The documentation should reflect the organisation you're actually building.

Do you need full-time SMFs immediately?

Not necessarily.

This is another area where the recruitment model has changed considerably.

For some firms, a fractional or interim SMF16 or SMF17 can make sense during the authorisation process and the early months of trading.

It can provide specialist expertise while the business is still developing its operational scale.

Then, as the firm grows, the role can transition to a permanent full-time appointment when the volume and complexity of the business justify it.

The important point is that the individual should have genuine experience of the authorisation environment.

There is a difference between somebody who has spent years running an established compliance function and somebody who understands what it takes to help build that function as part of an FCA authorisation process.

Working backwards from your submission date

So if you're currently preparing for FCA authorisation, here's a useful exercise.

Take your intended submission date.

Work backwards.

Identify the SMF designations your firm is likely to require.

Determine which individuals need to be appointed or identified.

Assess whether those individuals have genuinely relevant experience.

Consider whether any roles should initially be fractional or interim.

Then make sure the governance structure and Statements of Responsibilities reflect the organisation you're actually proposing.

This turns SMF recruitment from a last-minute exercise into part of the authorisation strategy.

How SMF Capital can help

That's precisely where SMF Capital's SMF Authorisation Support service is designed to help.

We work with firms preparing for authorisation — particularly in fintech, payments and cryptoassets — to identify and build the senior management structure required ahead of submission.

That can include:

• Identifying appropriate SMF16 candidates
• Identifying SMF17 and MLRO candidates
• Reviewing the wider board and chair requirements
• Helping structure Statements of Responsibilities
• Identifying fractional and interim SMF solutions
• Planning the recruitment sequence around the FCA submission timetable

The approach starts with the business model and the intended authorisation timeline.

Then we work backwards.

The objective isn't simply to fill individual vacancies.

It's to build a credible senior management structure that makes sense for the regulated business you're trying to create.

Closing

If you're preparing an FCA authorisation application and you're wondering when you should start building your SMF team, the answer is: earlier than many businesses think.

You can find out more about SMF Capital's SMF Authorisation Support service at:

https://www.smfcapital.co.uk/smf-authorisation-support/

And if you already have a target FCA submission date, SMF Capital can work backwards from that date to help determine the senior management recruitment sequence.

That's all for this episode of the SMF Capital Podcast.

Thanks for listening.