For a growing number of smaller FCA-regulated firms, the question is no longer whether they need senior compliance leadership, but how much of it they need. A ten-person advice firm, a boutique investment manager or a lender that has just been authorised needs someone credible to hold the SMF16 Compliance Oversight function and, where the money laundering rules apply, the SMF17 Money Laundering Reporting function. What it rarely needs is that person five days a week.
That is why fractional compliance officers have become a mainstream option. A fractional Head of Compliance or MLRO is a named senior individual who works for the firm part-time, often between a few days a month and three days a week, and holds the senior management function personally. Done well, the arrangement gives the board real accountability and real expertise at a sustainable cost.
Done badly, it gives the firm a name on the FCA Financial Services Register and very little else. The difference usually comes down to the questions the firm asks before making the appointment. Here are twelve worth asking.
First, what the FCA will be looking for
Nothing in the Senior Managers and Certification Regime requires an SMF16 or SMF17 holder to be full-time. But the FCA will want to be satisfied that the individual is fit and proper, including competent and capable for the role; that they have enough time to perform it for a firm of your size and risk; and that the firm has an adequate compliance function and adequate anti-money laundering systems and controls around them.
The FCA’s Financial Crime Guide is also clear that an MLRO should have sufficient resources, experience, access and seniority to do the job, and lists an MLRO who lacks credibility and authority as poor practice. Those expectations apply whether the MLRO works five days a week or one.
The questions below are designed to test exactly those points.
Experience
1. Have you held SMF16 or SMF17 before, and where?
The strongest fractional candidates have held one or both functions at more than one firm. That matters to the FCA when it assesses the application, and it matters to you because a fractional professional has less time to learn on the job. Check their history on the Financial Services Register rather than relying on the CV alone.
2. What experience do you have in our sector and with our permissions?
Compliance is not one discipline. A fractional MLRO for a payments or e-money firm needs real experience of transaction monitoring, sanctions and safeguarding. A fractional Head of Compliance for an advice firm needs suitability, client assets and Consumer Duty depth. A lender needs someone who knows the consumer credit rules in practice. Generalist experience, however senior, is rarely enough on limited days.
3. Tell us about a difficult regulatory situation you have handled.
Ask about a breach they had to report, a difficult conversation with a supervisor, a skilled person review or a voluntary requirement. You are listening for judgement and candour. A fractional compliance officer who has never had to deliver an unwelcome message to a board is an unknown quantity.
Capacity
4. How many other firms do you work for, and in what roles?
Most fractional professionals have a portfolio of clients. That breadth is valuable, because it brings exposure to how other firms solve the same problems. But there is a limit. Ask how many approved roles they hold, how their week is divided and what happens when several clients need them at once. Expect the FCA to ask similar questions.
5. How many days do you think our firm needs, and why?
A good candidate will not simply accept whatever time commitment you propose. They will ask about your client numbers, products, financial crime exposure, complaints and the team in the business, and then give you a reasoned view. A candidate who agrees to one day a month for a firm that clearly needs more is a red flag.
6. How do we reach you between scheduled days?
Regulatory issues, urgent financial promotions and suspicious activity do not wait for diary slots. Agree response times, contact routes and what counts as urgent before the appointment starts.
7. Do you have any conflicts of interest with our firm?
Ask whether they work for competitors, distributors, product providers or anyone else whose interests could conflict with yours, and how they would manage that. Record the answer.
Arrangements
8. Who covers when you are not here?
This question matters most for the MLRO. Under the Money Laundering Regulations 2017, the firm needs a nominated officer to receive internal suspicious activity reports and decide whether to report to the National Crime Agency. A fractional MLRO needs a deputy or alternate inside the business who can receive and assess reports in their absence. For a fractional Head of Compliance, someone in the business must handle day-to-day compliance tasks between visits.
9. What exactly will you do on each day?
The best fractional arrangements set out scope in writing: compliance monitoring, board reporting, regulatory change, financial promotions sign-off, training, the firm-wide money laundering risk assessment and the MLRO’s annual report. Agree what the fractional professional owns and what the business owns, so nothing falls between the two.
10. What access and information will you need?
A fractional compliance officer working on limited days needs efficient access to systems, management information, board papers and staff. If the firm cannot provide that, the arrangement will struggle regardless of the individual’s quality.
Accountability
11. How will you report to the board?
The holder of SMF16 needs a direct line to the board and the authority to challenge the CEO. Agree how often they will attend, what they will report and how quickly they will escalate. Their Statement of Responsibilities should reflect what they actually do, and any prescribed responsibilities they hold should be realistic for their time commitment.
Exit
12. What happens if either of us ends the arrangement?
Agree notice periods, a handover process and what records stay with the firm. If the fractional professional holds an SMF, the firm will need to notify the FCA when they leave and arrange cover. Since April 2026, the FCA’s reformed 12-week rule gives firms 12 weeks to submit an application for a replacement, with the cover individual able to continue until the application is decided, but that only works smoothly if succession has been thought about in advance.
Red flags
- No prior SMF16 or SMF17 approval and no meaningful deputy experience.
- Reluctance to discuss other clients or time commitments.
- An offer of very few days without asking about your business first.
- No plan for cover between scheduled days, especially for the MLRO role.
- Vague answers about difficult regulatory situations.
- Sector experience that does not match your permissions.
A simple engagement checklist
Before the fractional compliance officer starts, make sure the firm has in place:
When fractional is the wrong answer
Fractional compliance leadership suits smaller firms with steady workloads. It is the wrong model for high-volume consumer lenders, larger payments businesses, firms with heavy suspicious activity reporting volumes, and firms approaching the Enhanced tier of SM&CR. Those firms need a full-time compliance leader with a team. A good fractional professional will tell you honestly when your firm has outgrown the arrangement.
Finding the right person
The fractional compliance market is still relatively young, and the best candidates, those with prior SMF experience, sector depth and a manageable portfolio, are in demand. Firms that want to explore the model can look at specialist recruiters who focus on this space. For example, FD Capital, which has placed fractional finance directors since 2018, now recruits fractional compliance officers, including part-time Heads of Compliance and MLROs holding SMF16 and SMF17, for FCA-regulated firms.
Whichever route you take, asking these twelve questions before you appoint will tell you far more about whether a fractional arrangement will work than any CV.
Frequently asked questions
Can a part-time compliance officer hold SMF16?
Yes. There is no requirement for SMF16 to be full-time. The FCA must approve the individual, and will consider whether they have enough time and support to perform the function for the firm’s size and risk.
Can one fractional professional hold SMF16 and SMF17?
Yes, and at smaller firms that is common. It creates a single point of failure, so a deputy MLRO arrangement is particularly important.
Is a fractional compliance officer the same as a compliance consultancy?
No. A consultancy provides services from a team. A fractional compliance officer is a named individual embedded in the firm’s governance who holds the senior management function personally.
How many days a week does a fractional Head of Compliance usually work?
It varies with the firm’s size and risk, from a few days a month at a small advice firm to two or three days a week at a newly authorised lender or payments firm. The commitment should be reviewed as the business grows.
