1ST RO Does he have to be two ranks above?

Doesn't matter if it doesn't seem right to you. First RO has to be Sgt or above and will be your immediate line manager.
The RAF have been doing it for years and it works well. The only issue for the Army will be that they haven't been doing it and it will take a while for the guys to get into report speak.
I am in a joint environment and we have always found it funny that the Army officers have had to do all the reports for the Army staff. Just wouldn't happen in the RAF unless your line manager is an officer.
Anyway, what's wrong with it only being one rank abouve if you are a Cpl? Who better for much of the time, they see you more and most importantly they are normally your trade and understand exactly what you are doing (or should be doing)!
Where does line manager slot in on our rank structure! I have been over the QM's looking for one of those posters with badges of rank on it and no fecking line manager in the British Army rank structure.

Rant over
Line Manager - biscuit munching tea swirling crab good fer nothing ;)

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