Part 1: The Hidden Compliance Gap: Why onboarding is now a top risk for UK financial services firms
Hiring new client-facing or regulated staff can feel like a sign of growth and momentum. But in UK financial services – whether you’re a wealth manager, asset manager, retail/brokerage firm or advisory business – onboarding regulated roles is not just a business operation: it’s a critical governance and compliance control point under regulation. When onboarding goes wrong, firms face regulatory, reputational, and operational risks that can seriously damage client trust and long-term viability.
This post – the first in a two-part series – explores common pain points firms encounter when onboarding new regulated staff (e.g. investment advisers, certified advisers, or other client-facing roles) under Senior Managers and Certification Regime (SM&CR). In Part 2 we will focus on how firms can mitigate these risks and build resilient, audit-ready processes.
The Regulatory Landscape Is Shifting – Onboarding needs to keep up
- As you will most likely be aware, under SM&CR currently, roles must be correctly classified (Senior Manager Functions, Certification Functions, or Conduct-Rules staff), responsibilities clearly defined, and only approved or certified persons may perform regulated functions.
- At the same time, the regulatory regime itself is evolving: the consultation CP25/21 (The Senior Managers and Certification Regime review) is reviewing aspects of SM&CR – including interim approvals, criminal-record checks retention, and the scope of functions requiring pre-approval. Firms should expect potential changes in how SM&CR is applied.
- Beyond that, the forthcoming rules from the consultation CP25/18 (Tackling None-financial Misconduct in Financial Services) will expand formal regulatory scrutiny to non-financial misconduct (e.g. serious workplace misconduct, harassment, bullying) as part of conduct rules coverage for non-bank firms.
What this means: Firms must not view onboarding as a one-off compliance exercise. Instead, they need onboarding processes that are robust, flexible and forward-looking – able to adapt as regulation changes. The cost of building flexibility now is far lower than the cost of reworking everything under new regulatory pressure.
Common Pain Points in Onboarding Regulated Roles – Where many firms struggle
- Roleclassification and SM&CRcomplexity
- As firms grow, add new business lines or change organisational structure, roles and responsibilities evolve. But role classifications under SM&CR are often not revisited. That causes mis-classification – individuals operating in regulated or client-facing functions without proper certification or approval.
- Without time boxed and transparent processes covering clearly updated “Statements of Responsibilities” or responsibility maps (including drafting, internal and external pre-approvals), confusion grows; in a regulatory review, firms may struggle to provide a reliable audit history of was responsible for what, and when.
- If firms are under commercial pressure (e.g. to deploy staff quickly), there’s a temptation to onboard before approvals are fully complete – regulatory risk obviously increases.
Potential outcome: Unapproved or uncertified staff delivering regulated services – compliance breach, potential client harm, regulatory exposure.
- Incomplete or Inconsistent Fit & Proper and Background Screening
- Firms often rely on candidate declarations or informal reference checks – instead of consistent, documented, auditable background screening (criminal history, regulatory history, past employment, credit/financial soundness where relevant).
- International hires or candidates with cross-jurisdiction backgrounds add complexity: verifying records, references, and financial/disciplinary history from multiple jurisdictions can be time-consuming and difficult.
- Under staffing or resource constraints (common in smaller or fast-growing firms), these checks may be rushed, partially completed, or inconsistently applied across hires.
Potential outcome: Risk of onboarding individuals with undisclosed red flags, creating potential vulnerabilities – whether for misconduct, insolvency risk, conduct issues or suitability failures.
- Gaps Between Certification, Competence, and Actual Scope of Activity
- Certification or approval does not necessarily mean an adviser is competent for every product or service a firm offers. Yet many firms onboard without mapping adviser competence to the firm’s actual product and service scope.
- As a firm evolves – adding new products, services or business lines – there’s often no process to check whether already-certified staff remain competent under the new scope.
- Continuing Professional Development (CPD), refresher training, competence reassessment – all essential to keep pace with product evolution, regulatory change and market developments – are often informal or ad hoc, especially in smaller firms.
Potential outcome: Advisers may unintentionally operate outside their competence or approval scope – leading to unsuitable advice, client complaints, regulatory sanctions or reputational damage.
- Conduct Risk, Culture, and Non-Financial Misconduct-The growing regulatory focus
- With the upcoming changes under CP25/18, non-financial misconduct (e.g. harassment, bullying, workplace violence) will fall under formal regulatory scrutiny for non-bank firms. Meaning onboarding must cover not just compliance and competence, but also culture, behavioural expectations, and conduct standards.
- Yet many firms treat onboarding as a technical exercise – focusing on credentials, forms, and approvals – neglecting the “soft side”: ethics, behaviour standards, conflicts of interest awareness, whistleblowing culture, values, and accountability.
- Lack of workplace behaviour policies, weak or absent whistleblowing frameworks, and no formal assessment of cultural fit during onboarding – are vulnerabilities that may only emerge later, sometimes after serious damage.
Outcome: Toxic behaviour, misconduct or cultural breach – leading to regulatory penalties, high staff turnover, client distrust, and reputational fallout.
- Operational Fragmentation, Poor Documentation, and Limited Audit-Readiness
- Many firms still operate with siloed functions: HR, Compliance, Risk, Operations – each using separate systems or spreadsheets. Onboarding data, approvals, background checks, training records, role maps – all scattered across different tools.
- This fragmentation makes it very difficult to assemble a coherent, auditable onboarding record when regulators ask for evidence.
- As firms scale – or when turnover increases – lack of a unified, centralised onboarding process becomes a major governance liability.
Outcome: Inability to prove compliance in audits or inspections; risk that onboarding controls are bypassed or weakened under growth pressure; increased likelihood of regulatory findings or enforcement.
- Post-Onboarding Oversight, Role Drift and Scope Creep
- Onboarding is often treated as a discrete event – but over time, advisers’ responsibilities shift, products change, business strategy evolves. Yet many firms lack formal processes for re-certification or competence revalidation when roles or services change.
- Additionally, personal circumstances (e.g. financial distress, regulatory issues, disciplinary events) may change – affecting “fitness and propriety.” Without ongoing monitoring and periodic review, firms may remain unaware of emerging risks.
- During early tenure or probation periods, firms often focus only on performance metrics (e.g. sales, new accounts), with little emphasis on compliance behaviour or conduct.
Outcome: Gaps between approved role scope and actual activity, unmonitored conduct risk, and potential regulatory or client harm downstream.
Why All This Matters – Risk Is Structural, Not Just Operational
Regulated-role onboarding is not a “check-the-box” HR exercise. It is a strategic control point – where firms protect themselves, their clients, and their regulatory standing.
Getting onboarding right builds a foundation of trust, competence, and compliance. Doing it poorly – or treating it as an afterthought – embeds risk into the firm’s DNA.
With regulatory expectations rising (especially around conduct, culture and non-financial misconduct), and with SM&CR itself under review (via CP25/21), firms that treat onboarding as “just hiring” will find themselves vulnerable.
Onboarding risk isn’t a one-off. It compounds as firms grow, evolve services, hire more staff, or change product scope.
Coming Next: Blog 2 – How Firms Can Build Resilient, SM&CR-Ready Onboarding
In the next instalment, we’ll share practical, commercially-minded solutions tailored to UK financial services firms:
- Flexible onboarding frameworks aligned with SM&CR, that evolve as regulation changes
- Centralised, auditable documentation and role-mapping processes
- Role-based competence and product-scope governance
- Cultural and conduct-risk onboarding – from day one
- Formal post-onboarding oversight and periodic re-certification or re-validation
- Integration of HR, Compliance, Risk and Operations – for a coherent governance workflow
In an upcoming webinar, we will share best practice strategies that streamline onboarding, cut delays, and strengthen compliance – so your advisers and regulated staff can deliver value sooner, backed by governance you can trust:
From Hire to Hire-Performance: A Unified Approach to Onboarding, Talent & Compliance
Webinar – Tuesday 17th February 11:00 – 12:00GMT
Priority registration invitation – limited space – book your place early…
Onboarding staff in UK financial services isn’t just about filling seats – it’s about meeting stringent regulatory requirements while ensuring operational efficiency. Under SM&CR and FCA expectations, firms face increasing pressure to balance speed, compliance, and culture from Day One.
Join us for this practical session where industry experts unpack:
- The regulatory essentials every firm must get right
- Common operational pitfalls and how to avoid them
- Strategies for integrating talent management with compliance workflows
- Technology and best practices that streamline onboarding without compromising standards
For key T&C professions, compliance specialist, HR, or operations, this webinar will equip you with actionable insights to transform onboarding into a strategic advantage.
Reserve your spot today and take the first step toward smarter, compliant onboarding.