By Adrian Lawrence FCA
Smaller FCA-regulated firms need a compliance officer and an MLRO, but rarely two full-time ones. Adrian Lawrence FCA explains why more of them are choosing one experienced, part-time holder for both roles, and what it takes to make that work.
Every FCA-regulated firm, however small, has to answer two questions. Who oversees compliance with the regulator’s rules? And who is the firm’s nominated officer for money laundering? Under the Senior Managers and Certification Regime, those answers usually come with titles: SMF16, the Compliance Oversight function, and SMF17, the Money Laundering Reporting Officer.
In a bank or a large insurer, these are two senior full-time jobs, each with a team underneath. In a ten-person broker, a newly authorised payments firm or a small wealth manager, they are something else entirely. The work is real and the accountability is personal, but there is rarely enough of it to fill two diaries, and there is rarely the budget to pay for two senior salaries.
That gap is why a growing number of smaller firms are appointing one experienced person to hold both functions, often on a fractional basis of a day or two a week. Having recruited for these roles across brokers, payments firms, advisers and lenders, I have seen this become one of the most common requests we receive.
Why one person often makes sense
The regulator allows SMF16 and SMF17 to be held by the same individual, and in a smaller firm it is frequently the most proportionate structure. Compliance oversight and financial crime overlap heavily at this size. The same person who reviews the firm’s financial promotions and complaints is well placed to understand where its money laundering risks sit, and the board gets one accountable voice on the regulatory picture rather than two.
There are practical advantages too. A single holder means one approval application rather than two, one Statement of Responsibilities to agree, and one relationship for the FCA to build. When something goes wrong, the board knows exactly who to call.
It is not always right. Firms with high financial crime exposure, large transaction volumes or complex group structures often reach a point where the two roles need to be split. But for many firms in their first few years of authorisation, or those that have grown without their compliance structure keeping pace, a combined appointment is the sensible starting point.
Why fractional, not full-time
The second decision is how much of that person’s time the firm actually needs. For a small, directly authorised firm with moderate risk, the honest answer is often between two days a month and one day a week, with some flexibility for the weeks when something urgent lands.
The economics are striking. A full-time combined compliance officer and MLRO at a smaller firm will typically cost somewhere between £80,000 and £130,000 in salary, before employer’s National Insurance, pension and benefits add a further 20 to 30 per cent. A fractional holder working one day a week on a day rate in the region of £650 to £1,000 will usually cost a fraction of that, with no employment costs on top.
The quality argument is just as important as the cost. The candidates who work fractionally are often former heads of compliance and MLROs from larger firms who have chosen a portfolio career. A small firm that could never attract them to a full-time role at a salary it can afford can often secure two days a month of their time. That means the person sitting in front of the FCA has seen far more than the firm’s own size would suggest.
What the FCA will expect
None of this changes the regulator’s expectations. A fractional holder is still an approved Senior Manager, personally accountable for their area, and the FCA will assess them on the same basis as anyone else.
That has three practical consequences. First, the person must be genuinely able to do the job in the time allocated. The FCA will look at how many days they commit, what other roles they hold, and whether that adds up for a firm of this size and risk. Second, the firm must give them proper access: to the board, to management information, to files and to staff. A fractional compliance officer who only hears about problems after the event cannot discharge their duties. Third, the arrangement needs to be documented clearly, including what happens when urgent issues arise between scheduled days.
Firms sometimes assume that outsourcing compliance work removes the need for an approved holder. It does not. Monitoring, file reviews and training can be bought in from specialist providers, but the accountability for compliance oversight sits with an individual, and that individual needs FCA approval.
Making the appointment work
The firms that get the most from a fractional combined appointment tend to do four things well.
They size the role honestly. Before recruiting, they work out how much compliance and financial crime work the business genuinely generates, including board reporting, the annual MLRO report and monitoring, and add a margin for the unexpected.
They hire for their sector. A compliance officer who has spent ten years in investment management will not necessarily understand consumer credit, general insurance or payments. Sector experience matters more at a small firm, because there is no team to fill the gaps.
They plan for growth. A combined arrangement that works at ten staff may strain at forty. Agreeing up front how the role will scale, and at what point SMF17 might move to a dedicated MLRO, avoids a difficult conversation later.
They take advice on the structure. Specialist recruitment for a fractional compliance officer and MLRO should start with the firm’s permissions, risk profile and timetable, not with a list of CVs. Getting the structure right first makes the FCA application, and the appointment itself, far more straightforward.
A structure that fits the firm
The rules around senior managers were designed to make accountability clear, not to force small firms into structures built for banks. A single, experienced, part-time holder of both SMF16 and SMF17 is often the clearest accountability a smaller firm can have: one named person, properly qualified, with the time and access to do the job.
For firms that have been running compliance on goodwill, or stretching a director across a role they were never trained for, the fractional route is worth serious consideration. It is one of the few decisions in regulation that can improve quality and reduce cost at the same time.
