Why Regulated Firms Face a Harder Problem

Approval Takes Time

Under the Senior Managers and Certification Regime, anyone performing a Senior Manager Function must be approved before they start. The regulator can take up to three months to decide a complete application, and longer if it has questions. A successor who isn’t already approved for the function can’t simply take over on the day their predecessor leaves.

The 12-Week Rule Helps, but Only So Far

Where a Senior Manager leaves unexpectedly or is absent for a temporary reason, the 12-week rule allows someone to cover the function without prior approval for a limited period. Since the April 2026 reforms, the firm must submit an approval application within the 12 weeks if the person covering is to continue. The rule buys time, but it isn’t a substitute for a plan, and it’s designed for unforeseen situations rather than planned departures.

The Pool Is Small

Experienced Senior Managers with the right sector knowledge are in short supply. Internal successors are often capable but haven’t held the function, and external candidates may be committed elsewhere with long notice periods.

Accountability Can’t Pause

Every Prescribed Responsibility must be allocated at all times, and every area of the business must have a Senior Manager responsible for it. A gap, even a short one, is exactly what supervisors worry about.

What a Good Succession Plan Covers

Every Senior Manager Function

Plans should cover every Senior Manager Function in the firm, not just the chief executive. The departure of a compliance officer, MLRO or chief risk officer can be as disruptive as losing the CEO, and in some cases more so.

Emergency Cover

For each function, the plan should identify who would cover in an emergency, whether they could perform the function under the 12-week rule, and whether an existing Senior Manager could temporarily take on the responsibilities. The plan should also identify where an external interim would be needed.

Medium-Term Successors

For each role, the board should know whether there’s an internal candidate who could be ready within one to three years, what development they need, and what evidence the regulator would expect to see when they apply.

Long-Term Pipeline

Beyond named successors, firms benefit from building a wider pipeline: deputies, heads of function and senior certified staff who are developing towards Senior Manager roles.

Developing Internal Successors

Internal successors are often the best long-term answer, but the regulator will assess whether they’re ready, against the fit and proper test. Firms can make that assessment easier by giving potential successors the right experience in advance:

• deputising for the Senior Manager, with real responsibility rather than a title
• presenting to the board and its committees
• taking ownership of specific areas that would fall within the future Statement of Responsibilities
• engaging with the firm’s supervisors
• relevant training and qualifications.

When the time comes, a documented development history makes the approval application far stronger.

Using Interim and Fractional Senior Managers

For many firms, especially smaller ones, the realistic emergency option is an experienced interim or fractional Senior Manager who can step in while the permanent successor is appointed and approved. Firms that identify this option in advance, and know how they’d find and appoint someone, can move much faster when they need to. SMF Capital’s fractional and interim SMF cover is designed for exactly these situations.

Reallocating Responsibilities Temporarily

Sometimes the quickest emergency answer is to give an existing Senior Manager temporary responsibility for a departing colleague’s area. This can work, but only if the person has the capacity and knowledge to do it properly. A chief executive who takes on compliance oversight on top of everything else, or a finance director who picks up operations overnight, may be accepting more than they can realistically oversee.

Where temporary reallocation is part of the plan, the firm should decide in advance which responsibilities could move to whom, update Statements of Responsibilities when it happens, and set a clear end date. The regulator will want to see that the arrangement is genuinely temporary and that the firm is actively recruiting.

Common Weaknesses

• CEO-only plans. Succession plans that cover the chief executive but not the control functions.
• Named but not ready. Successors identified on paper with no development plan or realistic timetable.
• Ignoring approval. Plans that assume a successor can start immediately, without allowing for the regulator’s assessment.
• Single points of failure. One person holding several functions, with no plan for all of them at once.
• Never tested. Plans that have never been discussed properly by the board or tested against a realistic scenario.

Board and Non-Executive Succession

Succession planning applies to the board too. The chair, committee chairs and the Senior Independent Director may all hold Senior Manager Functions, and their departure needs the same planning. Boards should keep a skills matrix, know when each non-executive’s term ends, and start searches early enough to allow for approval. For dual-regulated firms, the PRA also considers the board’s collective suitability, so each appointment needs to fit the whole.

Small Firms and Founder Dependency

In smaller firms, one or two founders often hold several Senior Manager Functions. Their departure, illness or retirement could leave the firm with no approved person for key roles. Succession planning here often means building a small senior team around the founders earlier than feels necessary, or at least identifying the interim options in advance. This is also a significant issue for firms preparing for sale, since buyers will look closely at key person risk.

A Succession Planning Checklist

• Does the plan cover every Senior Manager Function, not just the CEO?
• For each function, who would cover in an emergency, and how?
• Are internal successors identified, with development plans and realistic timelines?
• Does the plan allow for regulatory approval?
• Are interim options identified in advance?
• Does the board review and test the plan at least annually?

Succession and Executive Search

For chief executive and other senior executive roles at larger regulated firms, succession often combines internal development with an external benchmark, so the board can compare internal candidates against the market. Exec Capital, a sister practice of SMF Capital, runs FCA-regulated executive search and succession benchmarking at C-suite level. SMF Capital recruits across the Senior Manager Functions and can plan external searches to run alongside internal development.

The Bottom Line

Succession planning for Senior Managers has to account for something ordinary businesses don’t face: the regulator’s approval. Firms that plan for every function, develop internal successors with the regulator’s assessment in mind, identify interim options in advance and test their plans regularly are far better placed when someone leaves, whether it’s planned or not. For more on the functions involved, see SMF Capital’s guide to Senior Manager Functions.