SMCR for Small Firms: Who Actually Needs a Senior Manager Arrangement (and How to Set It Up)

The Senior Managers and Certification Regime (SMCR) has applied to almost every FCA-regulated firm since 9 December 2019. If you run a small firm – a payment institution, a mortgage broker, an IFA, a claims management company or a wealth manager – you are in scope, even if you have fewer than ten staff and no dedicated compliance function.

The good news is that SMCR was deliberately built so that smaller firms carry a lighter version of the framework. The hard part is working out which roles are prescribed, who holds them, and what evidence the FCA expects to see if it ever comes asking.

This guide explains who genuinely needs a Senior Manager arrangement in a small firm, how to allocate the functions when your team wears several hats, and the checks, rules and paperwork that go with them.

What SMCR actually asks of a small firm

SMCR has three parts, and it helps to keep them separate in your head:

• The Senior Managers Regime – the most senior people in the firm hold a defined, FCA-approved role and are personally accountable for a written statement of what they are responsible for.
• The Certification Regime – certain staff the FCA does not approve directly, but which your firm must certify each year as fit and proper to do their job.
• The Conduct Rules – a short set of behavioural standards that apply to nearly everyone in the firm, not just managers.

The FCA sorts firms into three categories: limited scope, core and enhanced. Most small and mid-sized firms sit in the core category. Enhanced covers the largest, most complex firms – major banks, insurers and large investment firms. Limited scope is a narrower group, including certain sole traders and firms with limited permissions, and carries the fewest requirements.

Your first job is to confirm which category you fall into, because it decides whether you need a Senior Manager for every key function or only a handful.

Who needs a Senior Manager Function?

If you are a core firm, you must appoint a Senior Manager for each Key Function your business actually carries on. Within a small firm, that usually means a short list:

• SMF1 – Chief Executive: the person ultimately responsible for running the firm.
• SMF3 – Executive Director: for a company, the directors who sit on the board.
• SMF27 – Partner: for partnerships and LLPs.
• SMF16 – Compliance Oversight: the person responsible for the firm’s compliance function and reporting to the governing body on it.
• SMF17 – Money Laundering Reporting Officer (MLRO): the nominated officer for anti-money laundering and financial crime.
• SMF18 – Other Overall Responsibility: where a material part of the business falls outside everyone else’s remit.

Larger firms layer on additional functions such as SMF2, SMF4, SMF5 and SMF24. A small firm typically needs only a few of these.

Alongside the approved roles, every firm must allocate Prescribed Responsibilities (PRs). These are specific compliance outcomes – for example, responsibility for the firm’s performance of its SMCR obligations, for the AML systems and controls, for compliance with client money rules, or for training staff on the Conduct Rules. In a small team, several PRs can sit with the same person, but each one must be assigned to someone.

The key point for smaller firms: one person can hold more than one SMF, and the FCA accepts this. You are not expected to create a large board to satisfy SMCR.

Allocating Senior Manager Functions without a big team

How to set it up in practice:

1. Map your actual activities against the Key Functions. Only allocate a function you genuinely carry on. Do not invent a role you do not need.
2. Decide who holds each function and each Prescribed Responsibility. Where one person holds several, document why – the FCA wants to see the logic, not just the label.
3. Write a Statement of Responsibilities for each Senior Manager. This is the formal record of exactly what that person is accountable for. It should be specific to your firm, not a generic template.
4. Draft or update the Management Responsibilities Map if your category requires one (core firms generally do not; enhanced firms do).
5. Submit the approval application through FCA Connect. Senior Managers need FCA approval before they can act.

Fit and proper checks: what the FCA expects

For Senior Managers, the FCA runs the approval process. For Certified staff, the firm carries out the assessment itself. Both rest on the same three tests:

• Honesty, integrity and reputation
• Competence and capability
• Financial soundness

Keep the evidence on file: CVs, qualifications, references, and credit and criminal record checks where relevant. Regulatory references are mandatory for Senior Managers and Certified staff, and previous employers must disclose certain information going back six years. Building a consistent file up front saves weeks of back-and-forth later.

The Conduct Rules: three things every firm must do

The Conduct Rules are deliberately short. Your obligations are straightforward:

1. Tell staff which rules apply to them and give them a copy.
2. Train staff – at induction and then at least annually.
3. Record everything – including any breaches and the action taken. Serious breaches must be reported to the FCA.

Senior Managers are subject to additional rules on top of the core set.

Handover procedures and the Statement of Responsibilities

When a Senior Manager leaves, moves role or goes on extended leave, you need a documented handover procedure so that accountability does not fall into a gap. You must also notify the FCA of changes to approved roles. A clear Statement of Responsibilities, kept current, is what makes that handover possible.

Your SMCR setup checklist

• Confirm whether you are a limited scope, core or enhanced firm.
• Identify the Key Functions your firm carries on.
• Allocate each function and each Prescribed Responsibility to a named person.
• Write a firm-specific Statement of Responsibilities for each Senior Manager.
• Run fit and proper checks and obtain regulatory references.
• Submit Senior Manager applications through FCA Connect.
• Certify Certified staff annually.
• Deliver and record Conduct Rules training.

Where small firms go wrong

Most SMCR problems are not about the forms – they are about treating the regime as a paperwork exercise. Watch for these:

• Letting one person hold so many responsibilities that real accountability blurs.
• Skipping the annual certification of Certified staff.
• Failing to document Conduct Rule breaches.
• Leaving the Statement of Responsibilities untouched after a restructure.

Get the paperwork right the first time

SMCR is manageable for a small firm – if the roles, responsibilities and evidence are set up correctly from the start. SPEAK TO A COMPLIANCE EXPERT to review your Senior Manager arrangements, or start with our SMF Submission Packs and Annual Certification Assessment Template Pack to build the documentation your firm needs.