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The Compliance Oversight (SMF16) and Money Laundering Reporting Officer (SMF17) are two key Senior Management Functions (SMF) that many FCA-regulated firms must appoint an individual to hold. Recently, the FCA has been taking a closer look at the competence of candidates holding these senior management roles. Therefore, it is important to understand what the FCA expect in order to identify the appropriate candidate and minimise the time and effort spent on applications.
Applicants can often receive numerous rounds of questioning from the FCA to identify how applicants can demonstrate that they are fit and proper to perform the SMF, including how much time they will devote to these roles. This latter point can be a particular challenge for smaller firms, where the SMF 16/17 candidates may need to carry out multiple roles.
Three key areas of assessment focus
There are three questions firms should consider before filing out an application:
Does the candidate have adequate knowledge and experience?
The FCA set out their expectations on the amount of relevant experience required by SMF 16/17 candidates in 2022, but recently we have seen the FCA asking for more specific details, including the type of relevant work done by the applicants. The FCA may also investigate granular details such as qualifications and training attended by the candidates including the provider and topics covered. It is therefore important for candidates with less direct experience in compliance or financial crime roles to receive detailed and effective training from reputable providers.
Have any actual or potential conflicts of interest been managed and mitigated?
Conflicts of interest may arise when a candidate performs other roles at the firm. This is not limited to performing roles covering both the first and second lines of defence. Candidates holding other positions in the control functions, such as finance or risk, may also be asked to explain how the potential conflicts between these roles are mitigated, how the candidate can perform the roles independently and how their work can be effectively supervised. In particular, the FCA is interested in whether the role holders will be able to spend sufficient time on their Compliance/Anti Money laundering duties.
Are the prescribed responsibilities (PRs) allocated appropriately?
It is common for smaller firms to allocate more than one PR to the SMF 16/17 candidate. However, we have observed the FCA questioning whether a firm has allocated too may prescribed responsibilities to the SMF 16/17 when they might reasonably expect these to be taken on by a SMF 3 or 27 i.e. a governing function role holder.
Obviously the three questions above are not exhaustive and there are other factors that may affect the FCA’s assessment. That said, if you can cover off the areas of knowledge and experience, conflicts management, time allocation and spread of responsibilities in your application forms you will be on the way to satisfying the FCA’s requirements for SMF 16/17 candidates.
How can Bovill Newgate support?
Bovill Newgate can support you throughout the whole SMF application process, including assessing the competence of the candidates, designing the training that they should receive in order to perform their roles effectively, and assisting you with communicating with the FCA. For more information, please reach out to the team.
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