SMF12 Chair of the Remuneration Committee: Responsibilities, Approval and CP26/37

SMF12, the Chair of the Remuneration Committee function, is the senior management function held by the non-executive director who chairs the board committee overseeing how the firm's pay policies are designed and applied. It applies only at Enhanced firms and dual-regulated firms that have a remuneration committee. It is an approved role today; the FCA's CP26/37 and the PRA's CP14/26 propose to make it notified.

What SMF12 covers

SUP 10C.5A.10R defines the chair of the remuneration committee function as having responsibility for chairing, and overseeing the performance of, any committee responsible for the oversight of the design and implementation of the firm's remuneration policies. It expressly includes committees set up under:

• SYSC 19B.1.9R, for significant alternative investment fund managers (AIFMs)
• rule 7.4 of the PRA Remuneration rules, as applied by SYSC 19D.1A.1R(1), for banks and building societies
• SYSC 19E.2.9R, for UCITS management companies
• MIFIDPRU 7.3.3R, for investment firms that are not small and non-interconnected

The holder is a non-executive director. Several of these rules require it: MIFIDPRU 7.3.3R requires the remuneration committee chair to be a non-executive member of the management body, and SYSC 19B.1.9R requires the chair and members of an AIFM's committee to be non-executive members of its governing body. If a firm sets up a remuneration committee voluntarily, chairing it is still SMF12 (SUP 10C.5A.2G).

Example: an Enhanced investment firm that is not small and non-interconnected must have a remuneration committee under MIFIDPRU 7.3.3R. Its non-executive chair holds SMF12, approved by the FCA.

For the full set of roles see our Senior Management Functions guide.

Which firms need an SMF12

SUP 10C Annex 1 lists SMF12 only for Enhanced firms. CP26/37 confirms SMF12 is a PRA function at dual-regulated firms, defined in the PRA Rulebook.

What the SMF12 holder is personally accountable for

Statement of Responsibilities. This is the document, held by the regulator, that lists what this person answers for. For SMF12 it records chairing the remuneration committee and overseeing its performance, and any prescribed responsibility. It should be less extensive than an executive's (SUP 10C.11.34G). Our guide to statements of responsibilities covers drafting.

Prescribed responsibilities. These are specific duties the rules require a firm to give to a named senior manager. PR M, overseeing the development and implementation of the firm's remuneration policies and practices, is the responsibility linked to this role:

• For UK banks, PR M is an FCA prescribed responsibility tied to the Remuneration Code in SYSC 19D, and SYSC 24 Annex 2 names SMF12 as its most appropriate holder.
• At dual-regulated banks, the PRA's PR M must go to an oversight function such as SMF12 (PRA Allocation of Responsibilities).
• At solo-regulated Enhanced firms, PR M is not on the FCA list that applies to them, so SMF12's accountability comes from the function itself and from the remuneration rules that apply to the firm.

Conduct Rules. The SMF12 holder must follow the Individual Conduct Rules, including Rule 6 on the Consumer Duty, and the Senior Manager Conduct Rules SC1 to SC4 in COCON 2. Pay decisions are where conduct and culture show, including how the committee treats staff found to have breached the non-financial misconduct rules in force since 1 September 2026; see our article on non-financial misconduct.

Duty of Responsibility. Under section 66A(5) of FSMA the regulator can act against a senior manager if the firm breaches a requirement in their area and they did not take reasonable steps to prevent it. For SMF12 that area is the committee's oversight of remuneration. DEPP 6.2.9-EG says a non-executive's reasonable steps may differ from an executive's, and the FCA carries the burden of proof. COCON 1 Annex 1 lists scrutinising the design and implementation of the remuneration policy as a key role of non-executives, and sets out what a committee chair is expected to do.

Reasonable steps in practice

Our article on senior manager reasonable steps sets out the general standard. For a remuneration committee chair, the evidence is in the committee's decisions and the reasons recorded for them.

The strongest record is a minute showing that the committee reduced or withheld an award because of a risk or conduct issue, with the reasons. It shows the policy works in practice, not only on paper.

The first 90 days in the role

• Read the handover pack, the remuneration policy, the last year of committee papers and any internal audit review of remuneration. Enhanced firms must have handover procedures under SYSC 25.9.
• Confirm which remuneration rules apply: SYSC 19D, SYSC 19B, SYSC 19E, SYSC 19G or none.
• Agree your Statement of Responsibilities, including PR M where it applies.
• Meet the chief executive, the head of HR, SMF4 and SMF16, and the risk committee chair.
• Review the terms of reference and the annual calendar, including the timing of the year-end pay round.
• Review how risk and conduct information reaches the committee before awards are set.
• Check the process for malus and clawback decisions, and test it against a recent case.
• Confirm the arrangements for independent remuneration advice.

Applying for approval

Today the firm applies on Form A. At an Enhanced firm the FCA approves; at a dual-regulated firm the PRA approves with the FCA's consent (SUP 10C.9.11G). The firm must first be satisfied the candidate is fit and proper; see our guide to fitness and propriety.

• Criminal records check: no more than 6 months old when the firm applies. Not needed for a move within the firm or group, or where the firm already checked the candidate as a board director (SUP 10C.10.16R).
• Regulatory references: from the current employer and anyone who employed the candidate in the past six years, given within four weeks.
• Competence: knowledge of remuneration rules and incentive design, a skills gap analysis and an induction plan.
• Interview: possible where the regulator has questions; at dual-regulated firms either regulator or both may interview.
• Timing: three months from a complete application; the FCA has committed to work to two months.

The candidate cannot start a planned appointment before approval. The temporary cover rule covers only a temporary or reasonably unforeseen absence, for up to 12 weeks, or until the regulator decides if the firm applies within those 12 weeks. Acting without approval exposes the person to action under section 63A of FSMA.

What CP26/37 would change for SMF12

CP26/37 proposes that SMF5, SMF10, SMF11, SMF12, SMF13, SMF14 and SMF15 become notified at dual-regulated and Enhanced firms. SMF12 is on the list.

• At Enhanced solo-regulated firms SMF12 is an FCA function: the firm would notify the FCA through My FCA.
• At dual-regulated firms SMF12 is a PRA function: the PRA's CP14/26 also lists it as notified, so the firm would notify the PRA, with no need to copy the FCA.

Before notifying, the firm would complete the same fitness and propriety assessment, criminal records and right to work checks, regulatory references and Statement of Responsibilities, and the holder of PR A answers for that vetting. Notifications can be made up to three months ahead and take effect on acknowledgement or the start date. The regulators keep a power to require pre-approval in exceptional cases. The Duty of Responsibility and Conduct Rules apply in full.

On prescribed responsibilities, the FCA would keep only PR A, PR D, PR Z and, for Enhanced firms, PR J-3, so PR M would end as an FCA prescribed responsibility for banks. The remuneration rules themselves do not change. The PRA's summary of the prescribed responsibilities it proposes to remove does not mention its PR M.

Other changes: Statements of Responsibilities kept current rather than refiled; temporary cover of 18 weeks, with a "reasonable use" test for FCA functions while the PRA keeps its test for PRA functions; and applications accepted until commencement, with notifications for later start dates from one month before. Consultation closes on 22 January 2027; final rules are expected in the first half of 2027, in force around six months later, subject to the Financial Services and Markets Bill. Investment firms can also read our guide to SM&CR for investment firms, and our CP26/37 article covers the full package.

Holding SMF12 with other functions

• SMF10, Chair of the Risk Committee: cross-membership of the risk and remuneration committees helps bring risk into pay decisions. One person chairing both is possible but concentrates oversight. See our SMF10 guide.
• SMF14, Senior Independent Director: a common combination.
• SMF9, Chair of the Governing Body: possible at smaller boards, but the chair then sets pay for the executives they work with most closely. See our SMF9 guide.
• Executive roles: SYSC 24 Annex 2 treats PR M as hard to justify for executive SMFs such as SMF1 to SMF6, and MIFIDPRU and SYSC 19B require a non-executive chair. At large insurers, PRA rules bar a group executive from chairing the remuneration committee.

How we support SMF12 holders

We prepare remuneration committee chairs for approval and for notification under the new rules, working from the firm's own policy and committee records. See our Senior Manager training and SM&CR support.

• one-to-one Senior Manager training built on the person's own Statement of Responsibilities
• drafting and review of the Statement of Responsibilities
• the Form A application and fitness and propriety file
• FCA interview preparation
• handover arrangements