Accountability Sits With the Regulated Entity

The Senior Managers and Certification Regime applies to each regulated firm individually. Each firm must have its own Senior Managers, its own Statements of Responsibilities and, where relevant, its own Responsibilities Map. Being part of a group doesn’t reduce the regulated firm’s obligations, and group policies don’t replace the firm’s own accountability.

That creates a practical tension. Group structures often centralise functions such as risk, compliance, finance, technology and HR. Decisions may be taken at group level by people employed by a different company. The regulated firm must still make sure every area of its business has a Senior Manager accountable for it, and that those Senior Managers can oversee what the group does on the firm’s behalf.

Group-Level Senior Managers

Someone employed by a parent or group company can still hold a Senior Manager Function at a regulated subsidiary, and needs approval to do so. For dual-regulated firms, the PRA has a specific Group Entity Senior Manager function, designed to capture individuals at group level who exercise significant influence over the regulated firm’s decisions. Groups should consider whether any senior group executive effectively makes decisions for the regulated firm, and if so, whether that role should carry a Senior Manager Function.

SMF Capital’s guide to SMF approval for overseas firms and group structures explains how these designations work in practice.

Dual Roles: Benefits and Risks

Holding Senior Manager Functions in more than one group company, sometimes called dual-hatting, is common and often sensible. A group chief risk officer who is also the Chief Risk Officer of the regulated subsidiary brings consistency and reduces cost. But dual roles create risks that the regulators look at closely.

Conflicts of Interest

What’s best for the group isn’t always best for the regulated firm. Decisions about capital, dividends, intragroup charges, shared services and risk appetite can pit the interests of the subsidiary, and its customers, against those of the wider group. A Senior Manager of the regulated firm owes their regulatory obligations to that firm, and must be able to put its interests first when they conflict with the group’s.

Time and Attention

A person holding several roles may not have enough time to discharge each properly. The regulator will consider whether the individual can realistically oversee the regulated firm’s area alongside their other commitments.

Independence of Control Functions

Compliance and risk functions need to be able to challenge. If the regulated firm’s compliance officer reports primarily to a group function with different priorities, their ability to challenge local management, or the group itself, may be weakened.

Unclear Accountability

When responsibilities are split between entity and group, it can become unclear who is actually accountable. Unclear accountability is exactly what the Senior Managers regime was designed to remove.

Capital, Dividends and Intragroup Charges

Some of the sharpest conflicts arise over money. A group may want a regulated subsidiary to pay dividends, fund other parts of the group, or pay management charges for shared services. The subsidiary’s Senior Managers, particularly those responsible for finance and risk, must be satisfied that these payments leave the firm with adequate capital and liquidity, are priced fairly, and don’t harm its ability to serve customers. Board papers should show that the subsidiary’s own interests were considered, not simply that the group’s request was approved. Independent non-executives are often best placed to ask those questions.

Independent Non-Executives in Subsidiaries

One of the most effective safeguards in a group structure is independent non-executive representation on the regulated subsidiary’s board. Independent directors can challenge group decisions that may not serve the subsidiary’s customers or financial soundness, and give regulators confidence that the firm isn’t simply run from elsewhere. Boards made up entirely of group executives can struggle to provide that challenge. NED Capital, a sister practice of SMF Capital, specialises in independent non-executive appointments, including for regulated subsidiaries within groups.

Overseas Parent Groups

UK subsidiaries and branches of overseas groups face particular challenges. Key decisions may be made abroad, group functions may be located in another jurisdiction, and senior group executives may not be familiar with UK rules. UK regulators expect the UK entity to have Senior Managers who genuinely control its business and understand UK requirements. For branches of overseas firms, the Head of Third Country Branch function plays a central role in giving the regulators a single accountable individual in the UK.

Intragroup Services

Where a regulated firm relies on services provided by other group companies, regulators treat those arrangements as outsourcing. They need written agreements, oversight by the firm’s Senior Managers, clear service standards and exit plans, even though the provider is a related company. A Senior Manager who assumes that group services must be fine because they come from within the group is taking a risk.

Consolidators

Consolidators that acquire many regulated firms face these issues at scale. Regulators have shown interest in how consolidation models work, including whether acquired firms keep enough local governance, how group Senior Managers oversee many businesses at once, and how customer outcomes are monitored across the group. A clear design for which functions sit at group level and which at each entity is essential.

Making Accountability Clear

• Map decisions, not just roles. Identify where key decisions affecting the regulated firm are actually made, and make sure an accountable Senior Manager is involved.
• Align Statements of Responsibilities. Make sure Statements describe responsibilities for the regulated firm specifically, even where the individual also has group roles.
• Manage conflicts explicitly. Keep a conflicts register, and agree how conflicts between group and entity interests will be resolved.
• Protect control function independence. Give the regulated firm’s control functions direct access to its own board.
• Add independent challenge. Appoint independent non-executives to regulated subsidiaries.
• Document intragroup services. Treat them as outsourcing, with agreements and oversight.

A governance and SMF structure review can help groups test whether accountability is clear at each regulated entity.

Questions for Senior Managers With Group Roles

• Is it clear which of my responsibilities relate to the regulated firm, and which to the group?
• Do I have enough time for each role?
• How would I handle a decision where the group’s interests conflict with the regulated firm’s?
• Do I receive management information specific to the regulated firm?
• Can I challenge group decisions that affect my area, and would that challenge be heard?

The Bottom Line

Group structures bring real benefits, but they can blur the clear individual accountability the Senior Managers regime depends on. Groups that map where decisions are made, manage dual roles and conflicts explicitly, protect the independence of control functions and add independent challenge at subsidiary level are far better placed with their regulators. For more on the Senior Manager Functions involved, see SMF Capital’s Senior Manager Functions guide.

If you are looking for support with London SMF Recruitment, make sure to reach out to our team today.