SMF COMPLIANCE GLOSSARY

 

Senior Management Functions (SMFs) are a branch of the Senior Managers and Certification Regime (SMCR), aimed at ensuring accountability in the financial sector. Individuals holding SMFs are responsible for key areas and decisions, and must meet specific standards of conduct under the SMF Conduct Rules.

Regulated entities, such as investment firms, are governed and supervised by the Financial Conduct Authority (FCA). The Board of Directors who perform the key Senior Management Functions (SMF) must obtain FCA approval before starting their roles. This is because SMFs are the most senior individuals in a firm, with the greatest potential to cause harm or impact upon market integrity.

The Financial Services and Markets Act (FSMA) gave the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) specific powers and responsibilities over individuals that exercise key roles within UK financial services firms. These roles are known as 'controlled functions'. Controlled functions are categorised into two main types: significant influence functions (SIFs) and the customer dealing function. SIFs are individuals with significant impact on the conduct of an authorised firm’s regulated activities. Within SIFs, there are sub-categories, notably the governing functions that include roles such as directors (SMF3), non-executive directors (NEDs), and the chief executive (SMF1), all of whom hold substantial influence over the firm's operations.

The Chief Executive Officer (SMF1) is the most senior executive function. They are responsible for the overall management and performance of the firm. The SMF 1 along with their team is responsible for overseeing the delivery of the firm's mission and strategy whilst conducting the day-to-day business of the firm in compliance with the regulatory framework. The team is made up of the Executive Directors (SMF3s), Money Laundering Reporting Officer (SMF17), Compliance Officer (SMF16), usually a Financial Officer, a Risk Officer and / or Head of Technology, Innovation, Legal etc.

The Chief Finance Officer (SMF2) oversees the firm's financial resources, ensuring effective management and regulatory compliance. Reports directly to the governing body on financial affairs

The Executive Director (SMF3) is a director of a firm (other than a non-executive director). SMF3 is responsible for managing one or more aspects of the firm’s affairs and people. As one of the most senior governing functions, the SMF3 will often oversee other Senior Management Functions like the SMF16 or SMF17.

The Chief Risk Officer (SMF4) manages the firm's risk controls. They have two principal responsibilities. The first is setting and overseeing risk exposures, and the second is reporting directly to the firm’s governing body regarding risk management. SMF4 ensures that the firm’s risk controls systems are compliant with the risk control requirements for Senior Managers and Certification Regime (SMCR) firms.

The Head of Internal Audit (SMF5) is responsible for the internal audit function of the firm. SMF5 maintain oversight of the firm's control environment and reports their findings and recommendations directly to the governing body.

The Group Entity Senior Manager (SMF7) oversees the management and conduct of the firm's regulated activities within a group structure. SMF7 is a controlled function which is only eligible for a person employed by a parent undertaking or holding company of the firm, or an undertaking which is a member of the firm’s group.

The Chair of the Governing Body (SMF9) leads and oversees the firm's governing body, ensuring effective performance and governance. The SMF9 is responsible for setting the tone at the top.

The Chair of the Risk Committee (SMF10) is the head of the risk committee, overseeing the firm's risk management strategies and policies. The SMF10 ensures that risks are identified, assessed, and managed appropriately.

The Chair of the Audit Committee (SMF11) is the head of the audit committee, supervising the firm's internal and external audit functions. The SMF11 will guarantee the firm’s financial reporting and compliance with regulations.

The Chair of the Remuneration Committee (SMF12) is the head of the remuneration committee, setting compensation policies that align with the firm's culture and governance practices.

The Chair of the Nomination Committee (SMF13) leads the nomination committee, and is responsible for overseeing the process for appointments to the Board of Directors. The SMF13 assures that the board's composition will support and champion the firm's long-term success.

The Senior Independent Director (SMF14) acts as a senior independent director, providing a sounding board for the Chair (SMF9) and serving as an intermediary for other directors (SMF3) when necessary.

A Head of Compliance is responsible for overseeing and managing the compliance function within an organisation, ensuring that the company and its employees are adhering with internal policies and procedures and also with regulatory requirements.

The Money Laundering Reporting Officer (SMF17) is a key director or senior manager within a firm, tasked with overseeing the firm's compliance with anti-money laundering regulations. As an essential part of the Senior Managers and Certification Regime (SMCR), the SMF17 ensures that the firm adheres to the FCA's rules on systems and controls against money laundering. The SMF17 often collaborates with other senior roles, such as the Head of Compliance (SMF16), to uphold regulatory standards.

The Other Overall Responsibility Function (SMF18) is for individuals with overall responsibility for one or more key aspects of a firm's affairs, notably in areas not covered by other SMF roles.

The Head of Third Country Branch Function (SMF19) holds significant influence over the management of a third-country branch of a firm, ensuring compliance with FCA requirements and overseeing the branch's operations.

The EEA Branch Senior Manager Function (SMF21) applies to individuals with substantial responsibility for one or more significant business units within the UK branch of an EEA firm.

The Other Local Responsibility Function (SMF22) is designated for individuals managing a UK branch of a third-country firm, overseeing local compliance and operations, and ensuring adherence to FCA regulations.

The Conduct Risk Oversight (Lloyd’s) Function (SMF23b) involves overseeing conduct risk at Lloyd's, ensuring that the firm's conduct aligns with regulatory expectations and managing risks effectively.

The Chief Operations Function (SMF24) is the most senior individual responsible for managing the internal operations and technology of a firm. The SMF24 ensuring efficient and compliant operational processes.

The Partner Function (SMF27) is a partner in a firm, typically, within a limited liability partnership, and with management responsibilities. The SMF27 is accountable for the firm's affairs, ensuring adherence to regulatory obligations.

The Limited Scope Function (SMF29) is only applicable to limited scope firms. This function entails responsibility for overseeing the firm's compliance with FCA's rules on systems and controls against money laundering.

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