Welcome to SMF Unlocked, the podcast from SMF Capital.
Today we are looking at one of the most important aspects of being an FCA Senior Management Function holder: the Conduct Rules.
For an SMF, regulatory responsibility is not simply about having a particular job title or being approved by the FCA.
Senior managers are subject to specific standards of behaviour and have personal accountability for the areas of the business for which they are responsible.
The FCA's Conduct Rules set minimum standards of individual behaviour, while SMF holders are also subject to four additional Senior Manager Conduct Rules.
So what do those rules actually mean in practice?
The Six Individual Conduct Rules
The FCA's individual Conduct Rules apply broadly across relevant staff within SMCR firms.
They require individuals to:
For an SMF holder, these principles form the foundation.
But there is another layer.
Senior managers have four additional rules specifically concerned with the responsibilities they carry.
Senior Manager Conduct Rule One: Effective Control
The first Senior Manager Conduct Rule is:
You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
This is a fundamental principle of senior management accountability.
The FCA does not expect an SMF holder to personally perform every task within their area.
A CEO cannot personally monitor every transaction.
A CFO cannot personally check every financial entry.
A Chief Risk Officer cannot personally assess every risk.
Instead, the requirement is to take reasonable steps to ensure that the business is properly controlled.
Senior Manager Conduct Rule Two: Regulatory Compliance
The second rule requires an SMF to:
Take reasonable steps to ensure that the business for which they are responsible complies with the relevant requirements and standards of the regulatory system.
This does not mean that every senior manager needs to be a regulatory lawyer.
Senior Manager Conduct Rule Three: Delegation
The third rule is particularly important for senior executives:
You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
Delegation is unavoidable in most substantial financial services businesses.
A senior manager simply cannot do everything personally.
But delegation does not mean abandoning responsibility.
The person receiving the delegated responsibility needs to be appropriate for the task, and the senior manager needs to retain sufficient oversight.
That creates an important distinction between delegating a task and transferring accountability.
An SMF might delegate operational activity to a senior member of their team, but they still need to understand what is happening within the area for which they remain accountable.
The FCA specifically warns that delegation does not remove an SMF holder's accountability.
Senior Manager Conduct Rule Four: Disclosure
The fourth rule requires an SMF to:
Disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
This is about ensuring that important information reaches the regulator when appropriate.
That reinforces a wider principle running through the SMCR:
Senior managers need to be informed about the businesses they are responsible for.
The Importance of \"Reasonable Steps\"
One phrase appears repeatedly in the Senior Manager Conduct Rules:
reasonable steps.
This is important because the FCA is not saying that a senior manager must guarantee that nothing ever goes wrong.
Financial services businesses are complex.
Mistakes happen.
Systems fail.
Employees make errors.
Customers complain.
Regulatory breaches can occur.
The question is whether the senior manager took appropriate and proportionate steps given the circumstances and the responsibilities allocated to them.
That makes the quality of management particularly important.
An SMF should have appropriate information, monitoring, escalation and challenge mechanisms.
If something significant happens, they need to respond appropriately.
Your Statement of Responsibilities Matters
The Conduct Rules cannot be considered separately from an SMF holder's Statement of Responsibilities.
The FCA requires every SMF to have a Statement of Responsibilities setting out what they are responsible and accountable for.
This provides an important link between the firm's governance structure and the individual's personal responsibilities.
Conduct Is More Than Financial Misconduct
Another important development is the FCA's approach to non-financial misconduct.
New rules and guidance concerning non-financial misconduct came into effect on 1 September 2026.
For non-banking firms within the relevant SMCR framework, the Conduct Rules now cover certain bullying, harassment or violence towards colleagues where there is a sufficient work-related link.
This reflects the broader regulatory focus on workplace culture and individual behaviour.
For senior managers, conduct therefore extends beyond obvious financial or regulatory breaches.
Leadership behaviour, decision-making, treatment of colleagues and the response to inappropriate behaviour can all become relevant depending on the circumstances.
What Happens If an SMF Breaches the Rules?
A breach of the Conduct Rules can have serious consequences.
The FCA states that disciplinary action can include a fine, restrictions, a prohibition on carrying out certain activities or withdrawal of approval.
Firms also have obligations concerning disciplinary action arising from Conduct Rule breaches.
This reinforces why Conduct Rules should not be treated as a box-ticking exercise.
For someone considering an SMF appointment, understanding the rules before accepting the role is important.
What Does This Mean for Recruitment?
For firms recruiting an SMF, the Conduct Rules provide another reason to look beyond the candidate's CV.
A candidate may have impressive technical qualifications and many years of industry experience.
But the firm also needs to consider whether the individual has demonstrated the judgement and leadership capability necessary to operate under a regime of personal accountability.
Can they challenge difficult decisions?
Do they understand risk?
Can they delegate effectively?
Will they escalate problems?
Are they comfortable dealing directly with regulators?
And will they take responsibility when something goes wrong?
These characteristics can be just as important as technical expertise.
Preparing for an SMF Appointment
For candidates, understanding the Conduct Rules before entering an SMF role can be extremely valuable.
You should understand your Statement of Responsibilities.
You should know what areas of the business you are accountable for.
You should understand how responsibilities are delegated.
You should know how material issues are escalated.
And you should be confident that you have sufficient authority, resources and information to discharge the responsibilities attached to your position.
If those things are not clear before accepting the role, they are worth discussing.
SMF Capital
SMF Capital specialises in senior-level recruitment for regulated businesses.
That means helping firms identify candidates who have not only the technical experience required for a position, but also the leadership capability and regulatory understanding required to operate effectively within an SMCR environment.
For candidates, the same principle applies.
An SMF appointment is a significant career step and should be approached with a clear understanding of the responsibilities involved.
The Conduct Rules Explained resource provides further information on who the Conduct Rules apply to and what they require.
Final Thoughts
The Conduct Rules are ultimately about how senior people behave when they have responsibility for a regulated business.
For an SMF holder, the four additional Senior Manager Conduct Rules can be reduced to four important questions:
Is the business properly controlled?
Is it complying with the relevant regulatory requirements?
Are responsibilities being delegated appropriately and overseen effectively?
And is important information being disclosed to the regulator when it should be?
Those questions sit at the heart of individual accountability under the SMCR.
That concludes this episode of SMF Unlocked.
For more information, visit SMF Capital and explore the specialist resources and recruitment services available for regulated senior management appointments.
Thank you for listening.