In the past years the Autonomous Underwater Vehicle technology has increased in complexity and expanded its role in the subsea environment. More and more, AUVs are performing critical and key activities. Therefore, Reliability of AUV systems is a topic with crescent relevance in the underwater field. When developing a complex system such as an AUV some issues might appear during the execution of hardware and software FMECA individually. Hence, a functional approach appears as the most suitable for this type of system. Within this paper this new method for implementing Functional FMECA to AUV is presented step-by-step with an study case applied to a subsea-resident AUV for inspection in order to illustrate and understand the how the results are obtained.