The Cost of a Bad Hire in a Regulated Business

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The Real Cost of a Bad Hire in a Regulated Business

Last updated: 10 November 2026

Key takeaways

In a regulated firm, the cost of a bad hire is not only salary and fees: re-approval, licence delays, remediation and partner trust are often larger.
Replacing a key person can need regulator approval again: VARA requires prior approval to change Responsible Individuals, and the MGA approves key functions before appointment.
The FCA can require a firm to pay for a skilled person review under section 166 of FSMA.
In 2016 the FCA fined a former MLRO £17,900 and banned him from compliance and MLRO roles for a serious lack of competence and capability.
Structured interviews, regulator-relevant references and clear probation objectives reduce the risk.

The cost of a bad hire is usually counted in salary, recruitment fees and the time it takes to replace someone. In a regulated fintech, crypto or iGaming business, that is the small part of the bill. When the wrong person holds a role the regulator cares about, the costs show up in the licence file, in remediation work and in relationships with banks and partners.

This guide is for founders, COOs and HR leads who are about to hire into compliance, AML, risk or senior roles. It lists the cost components that apply to regulated firms and the hiring steps that reduce the risk. We do not quote survey figures: published numbers vary widely by method and market, and your own cost depends on your role and licence.

The cost of a bad hire, component by component

Cost	What happens	Why it is bigger in a regulated firm
Direct costs	Salary paid, recruitment fees, onboarding and training time	Senior compliance and risk hires are often among the most expensive roles to fill
Re-approval	The replacement must go through the regulator's approval or fit and proper process	The role cannot always be filled immediately, and the regulator may ask why the first holder left
Licence or launch delay	Key roles sit on the critical path of an application	A weak or departing key person can hold up the whole licence
Remediation	Fixing policies, controls, backlogs or reports the person left behind	May include external reviews, which the regulator can require the firm to pay for
Partner trust	Banks, payment providers, auditors and platforms review the firm's controls	Turnover in key compliance roles can trigger extra questions or due diligence
Personal and firm enforcement	Regulators can act against individuals and firms when controls fail	The consequences can outlast the person's time at the firm

Re-approval and delay

When the person who leaves holds a regulator-approved role, the replacement usually needs approval too. VARA in Dubai requires a VASP to notify and seek approval from VARA before any change in its Responsible Individuals, except in reasonably unforeseen circumstances, in which case it must notify VARA immediately and explain how it will continue to meet the requirements. The MGA requires a licensee to seek approval before appointing a key function. In the UK, senior management functions need FCA approval before the person takes them on.

Each re-approval takes time, and during that time the role is either empty or covered by someone the regulator has not yet assessed. If the role is on the critical path of a licence application, the launch waits. For what regulators assess, see Key Function Holders: What Regulators Check Before Approving a Hire.

Remediation

A weak hire in compliance or AML often leaves work behind: policies that do not match the business, monitoring rules that were never tuned, unreviewed alerts or reports. Fixing them costs internal time and often external help.

Where a regulator has concerns, it may require an independent review. The FCA, for example, can require a skilled person review under section 166 of FSMA, and it says that under its rules it can require the regulated firm to pay the costs of the review.

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Enforcement against the individual

Regulators can and do act against individuals in key roles. In a Final Notice dated 12 October 2016, the FCA imposed a financial penalty of £17,900 on a former MLRO of Sonali Bank (UK) and prohibited him from performing the SMF16 (compliance oversight) and SMF17 (money laundering reporting) functions. The FCA found that he had demonstrated a serious lack of competence and capability and was not fit and proper to perform those roles.

For the firm, a case like this means the role was held by someone who could not do it, and the gap had already caused damage before it was found. That is the real cost of a bad hire in a regulated business: the risk sits in the control framework until someone notices.

Partner trust

Banks, payment service providers, card schemes, auditors and exchange partners all assess a regulated firm's controls. Frequent changes in the MLRO or Head of Compliance can lead to extra due diligence questions or slower onboarding with new partners. These costs are hard to measure, but founders feel them when a banking relationship takes longer than planned.

Early warning signs

Most bad hires in regulated roles show themselves early, if you look for the signs:

Policies and reports that read as generic, with no reference to your products or customers.
Alerts and reviews piling up while the person works on other things.
Regulator or partner questions that go unanswered, or are answered late and vaguely.
Decisions escalated to the founders that the role holder should own.

Review these signs at fixed points in the first months, alongside the probation objectives below. Acting early costs far less than acting after a finding.

How to reduce the risk

Structured interviews. Use the same scenarios for every candidate, built from your own business: a suspicious transaction pattern in your product, a regulator's information request, a conflict between growth and compliance. Score the answers against what you agreed in advance.

Regulator-relevant reference checks. Ask previous employers what the candidate personally owned, which regulator meetings they led, how they handled findings, and whether they would rehire them. In the UK, regulatory references for senior management function applicants must go back 6 years.

Fit and proper screening before the offer. Check the candidate against the regulator's criteria: competence for your business, reputation, conflicts of interest and time commitment. Do it before you make an offer, not after.

Probation objectives. Write specific objectives for the first months: for an MLRO, for example, a reviewed business risk assessment, tuned monitoring rules and a cleared alert backlog. Review them formally.

Plan the cover. Know in advance how you would cover the role if it went wrong. See Interim vs Permanent Compliance Hires: When Each Makes Sense.

What we recommend

List the cost components that apply to the role you are hiring for, including re-approval and licence delay.
Build structured interview scenarios from your own business and regulator.
Take references that test ownership and regulator dealings, going back as far as your regulator requires.
Screen against fit and proper criteria before making an offer.
Set written probation objectives and review them on a fixed date.

FAQ

What is the cost of a bad hire in a regulated business?

Beyond salary and recruitment fees, a bad hire in a regulated firm can mean a new regulatory approval for the replacement, a delayed licence or launch, remediation work, and lost trust with banks, payment partners and auditors. In key roles, a bad hire can also lead to enforcement against the individual.

Can a bad compliance hire lead to regulatory action?

Yes. In 2016 the FCA fined a former MLRO of Sonali Bank (UK) £17,900 and prohibited him from performing the SMF16 compliance oversight and SMF17 money laundering reporting functions, after finding a serious lack of competence and capability. Firms can also face their own consequences when key controls fail.

Who pays for an FCA skilled person review?

The FCA says that under its rules it can require the regulated firm to pay the costs of a skilled person review under section 166 of FSMA. A review is one of the ways remediation costs build up after control failures.

Does replacing a key person need regulator approval?

Often yes. VARA requires a VASP to notify and seek approval before changing its Responsible Individuals, except in unforeseen circumstances. The MGA requires approval before a key function is appointed. In the UK, senior management functions need FCA approval before the new person starts.

How can I reduce the risk of a bad hire in a regulated role?

Use structured interviews with scenarios from your business, take references that test what the candidate personally owned and how they dealt with the regulator, check the candidate against the regulator's fit and proper criteria before the offer, and set clear probation objectives.

Are there reliable statistics on the cost of a bad hire?

Many published figures come from surveys with different methods and markets, so they are hard to compare. For a regulated business, it is more useful to list the specific costs that apply to your role and licence, such as re-approval, delay and remediation, and estimate them for your own situation.

The bottom line

The cost of a bad hire in a regulated business includes re-approval, delays, remediation and lost trust, and in the worst cases enforcement, so the hiring process should be as careful as the role is important. Hirexel recruits compliance, AML, risk and senior hires for fintech, crypto, blockchain and iGaming firms, and screens candidates against regulator criteria before you meet them. For how to compare agency models for these roles, see Recruitment Agency Fees Explained: Contingency, Retained and Fixed Fee.

Want to lower the risk on your next key hire?

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