Most brokers start life under someone else’s permissions. A mortgage adviser joins a network, a small general insurance broker becomes an appointed representative of a larger principal, an investment introducer sits under a firm that holds the regulatory risk. It is a sensible way to begin. The principal carries the compliance burden, and the broker gets on with clients.
Sooner or later, though, many growing brokers start to resent the arrangement. Network fees rise with turnover. The principal’s product panel limits what the broker can offer. File checks arrive on someone else’s timetable. And the broker’s own name sits underneath a brand it does not control. At that point the question becomes whether to go directly authorised.
The commercial case is usually clear. The people case is where firms get caught out. Going directly authorised means the broker now needs its own Senior Managers, approved by the FCA, who can genuinely run compliance and financial crime oversight. This article sets out who those people are, when to hire them, and how to avoid the mistakes that stall applications.
What changes when you leave a principal
As an appointed representative, your firm is not authorised in its own right. The principal accepts regulatory responsibility for what you do within the scope of its permissions, and it oversees you through monitoring, file reviews and sign-off of your financial promotions. The FCA strengthened those oversight duties in its PS22/11 reforms to the appointed representatives regime, which is one reason principals have become more demanding, and more expensive, partners.
The individuals at an appointed representative are approved under the older Approved Persons Regime rather than the Senior Managers and Certification Regime. Once you apply for your own authorisation, that changes completely. Your firm comes within the Senior Managers and Certification Regime in its own right, usually as a Core firm, and the people running it need approval for specific Senior Manager Functions set out in SUP 10C of the FCA Handbook.
In practice, the compliance work your principal used to do now has to be done by someone inside your business, or by someone you appoint, who is named in the application and accountable to the regulator.
The Senior Managers a directly authorised broker needs
The exact list depends on your permissions and structure, but a typical Core broker needs most of the following.
| Function | Who usually holds it at a broker | Can it be fractional? |
|---|---|---|
| SMF3 Executive Director or SMF1 Chief Executive | The founder or managing director | Rarely; this is usually the person who runs the firm |
| SMF9 Chair | The chair of the board, where there is one | Often a non-executive role |
| SMF16 Compliance Oversight | A compliance officer or Head of Compliance | Yes, commonly |
| SMF17 Money Laundering Reporting | An MLRO, often the same person as SMF16 | Yes, commonly |
| SMF29 Limited Scope Function | Used at Limited Scope firms instead of the above executive functions | Depends on the firm |
Two points matter here. First, SMF17 only applies if your firm falls within the Money Laundering Regulations. Investment, wealth and life and pensions brokers usually do; many pure general insurance brokers and some credit brokers do not, although they still need sound financial crime controls. Check this against your planned permissions before you start recruiting. Our guide to which SMFs apply at which firm tier sets out the differences.
Second, at most brokers the compliance officer and MLRO are the same person. That combined role is the single most important hire in the whole process, because it is the one the FCA will look at hardest. SMF Capital’s page on combined compliance officer and MLRO recruitment explains why firms structure it this way and what the regulator expects from someone holding both.
Why the compliance hire makes or breaks the application
When the FCA assesses an application for authorisation, it is testing whether the firm meets the threshold conditions, including whether it has appropriate resources and whether it will be run soundly. For a small broker, the strongest evidence of that is the quality of the people named on the forms.
A founder who has spent fifteen years advising clients may be an excellent broker, but the regulator will want to see someone in the business who understands compliance monitoring, complaints handling, financial promotions, the Consumer Duty and regulatory reporting, and who has done it before. If the proposed compliance officer has only ever worked inside a network’s compliance department, or has never held an approved function, expect questions.
The fit and proper test applies to every proposed Senior Manager. It covers honesty, integrity and reputation; competence and capability; and financial soundness. SMF Capital’s guide to the fit and proper test in full explains each criterion. The practical point for a broker is simple: test your candidate against those criteria before you name them, not after the FCA starts asking.
Full-time, part-time or fractional?
Very few brokers going directly authorised need a full-time Head of Compliance on day one. A firm of ten to thirty people can usually be overseen properly by an experienced compliance officer and MLRO working one or two days a week, supported by an outsourced provider for file checking and monitoring.
That model works for three reasons. It gives the firm an approved individual who is genuinely accountable, rather than a consultancy that cannot hold the function. It brings in someone who has usually seen several firms and knows what good looks like. And it costs a fraction of a permanent hire. See SMF Capital’s pages on part-time compliance officers for small firms and fractional MLRO recruitment for how those appointments are structured.
The limits are worth knowing too. A fractional compliance officer cannot be in the office every day, so the firm needs good systems and a clear escalation route between visits. If you hold client money, run a large network of your own appointed representatives, or advise on higher-risk products, you may need more days, or a full-time hire sooner. SMF Capital’s article on when interim and fractional appointments work, and when they don’t is a useful check.
If financial crime is the bigger risk in your business, for example because you broker investments or handle large client payments, it can make sense to look specifically for a fractional MLRO with deeper anti-money laundering experience. MLRO Capital, our sister site for MLRO and financial crime recruitment, focuses on exactly that hire.
Getting the timing right
The most common mistake brokers make is treating the compliance hire as the last step before submission. In reality it should be one of the first.
Hire before you write the application
Your compliance officer should help shape the application itself: the compliance monitoring plan, the policies, the financial crime risk assessment and the description of how the firm will treat customers. An application drafted by the founder or a consultant, and then handed to a compliance officer who joined a week earlier, tends to show. The regulator may want to interview the proposed Senior Managers, and they need to be able to talk confidently about documents they helped write.
Plan around regulatory timescales
Statutory deadlines have long allowed the FCA up to six months to decide a complete application for authorisation and up to three months for a Senior Manager approval. In July 2025 the regulator announced faster targets, including proposals to cut those deadlines and an aim to decide at least half of Senior Manager applications within 35 days. Even so, an incomplete application can take much longer, and gaps are usually about people and plans rather than paperwork. The FCA’s guidance on how to apply for authorisation sets out what a complete application needs.
Allow for notice periods
If your preferred compliance officer is employed elsewhere, they may have a three-month notice period. A fractional candidate with an existing portfolio can often commit to a start date much sooner, which is another reason the fractional model suits firms going through authorisation.
SMF Capital’s authorisation support service is built around these timings: the search, the fit and proper checks and the regulatory references are planned around your intended submission date, not after it.
What to look for in a broker’s first compliance officer
When you interview candidates, look beyond the job titles on their CV. The strongest candidates for a newly authorised broker usually share a few traits.
- They have held an approved compliance function before, ideally at a firm of similar size and type.
- They have built a compliance monitoring programme from scratch, not just run one someone else designed. SMF Capital’s guide to compliance monitoring sets out what that involves.
- They understand your products: protection and general insurance, mortgages, consumer credit or investments each carry different rules.
- They can explain how they would evidence Consumer Duty outcomes in a small firm without creating a paperwork exercise.
- They are comfortable challenging the founder, and can describe a time they did.
- Their regulatory references, covering the previous six years, will come back clean and on time.
That last point is often overlooked. Regulatory references are a requirement for Senior Manager appointments, and a slow former employer can delay an approval by weeks. SMF Capital’s guide to regulatory references and the six-year rule explains what to request and when.
Common mistakes we see
Naming the founder as compliance officer. It can be done at a very small firm, but the FCA will look closely at whether one person can credibly run the business and oversee its compliance independently. It rarely helps the application.
Treating an outsourced consultancy as the compliance officer. A consultancy can do the monitoring and file checks, but it cannot hold the SMF16 function. Someone must be named and approved. SMF Capital’s guide to what you can and can’t outsource draws the line clearly.
Hiring for seniority rather than fit. A former bank Head of Compliance may be impressive on paper and badly suited to a twelve-person broker where they will need to write policies themselves.
Having no plan for absence. If your compliance officer and MLRO is fractional and falls ill, who reports a suspicion, signs off a promotion or deals with a complaint? Agree cover arrangements before authorisation, not after.
Leaving the hire too late. If a Senior Manager leaves unexpectedly after authorisation, the 12-week rule allows temporary cover while you apply for a replacement, and SMF Capital’s urgent SMF replacement service exists for exactly that situation. Before authorisation, there is no such safety net: the application simply stalls.
A realistic sequence for going directly authorised
- Decide your permissions and structure. This determines which Senior Manager Functions you need and whether you are within the Money Laundering Regulations.
- Appoint your compliance officer and MLRO. Full-time, part-time or fractional, they should be in place before the application is drafted.
- Build the compliance framework together. Policies, monitoring plan, financial crime risk assessment, complaints process and Consumer Duty approach.
- Gather regulatory references and prepare Statements of Responsibilities. SMF Capital’s Statement of Responsibilities template is a good starting point.
- Submit the application and prepare for questions. Make sure each proposed Senior Manager can talk through their part of it.
- Agree your exit from the principal. Coordinate the end of your appointed representative arrangement with the date your authorisation takes effect.
SMF Capital’s article on the Senior Managers you’ll need when you go directly authorised covers the designations in more detail, and building an SMF team from scratch follows a firm through the whole journey.
The bottom line
Going directly authorised gives a broker freedom over its products, its brand and its costs. It also transfers responsibility for compliance from the principal to people inside your own firm. Get the compliance officer and MLRO hire right, and get it early, and the rest of the application tends to follow. Get it wrong, and even a strong business can spend months answering questions it could have avoided.
If you are planning to leave a network or principal, talk to us before you fix your submission date. Broker searches are delivered by SMF Capital, and every one is led personally by Adrian Lawrence FCA.
