Streamlining SMCR: Immediate changes and the road ahead

The FCA and PRA this week finalised their rules for phase one of their planned reforms to the Senior Manager and Certification Regime (SMCR) with the first wave of changes implemented with immediate effect.

HM Treasury has also published a consultation setting out its proposals for phase two of SMCR reforms including the removal of the certification regime. 

Although FCA, PRA and HM Treasury consulted on the changes last summer (see our previous article: Senior Managers and Certification Regime reforms), reform of the SMCR has long been on the regulatory agenda and the proposed changes bolster the government and FCA/PRA’s shared goals for improved regulatory efficiency and proportionality. 

Whilst the phase one reforms do not significantly alter the SMCR, changes particularly in relation to the 12 week rule and to some of the reporting requirements should lighten the administrative burden currently applying to firms.

The phase one changes take effect in two stages: on 24 April 2026 and 10 July 2026. Timings for phase two remain uncertain. Although the FCA has said it expects to consult on phase two proposals later this year, HM Treasury makes clear that implementation of phase two requires primary legislative changes which are subject to when parliamentary time allows. 

24 April 2026: FCA reforms

From 24 April firms will benefit from the following reforms.

• The 12-week rule (which allows someone to cover for a Senior Manager without being approved): The rule is amended so that firms have 12 weeks in which to submit a Senior Management Function (SMF) application, rather than 12 weeks to both submit and receive approval. The candidate will be able to perform the role until determination, with Senior Manager Conduct Rules applying during that period.
• Criminal records checks (CRCs): The validity period for CRCs obtained for an SMF candidate is extended from three to six months. In addition, firms are no longer required to undertake CRCs where an existing SMF holder is applying for an SMF role within the same firm or group. Firms should be aware that although these changes will take effect on 24 April, the FCA has flagged that the relevant forms will not be updated until 10 July and therefore for a limited period, the wording on the forms will not match the revised requirements.
• Additional handbook guidance on SMF roles: New guidance and rules are provided on the applicability of certain SMF roles, specifically SMF7 (Group entity senior manager) and SMF18 (other overall responsibility).
• Prescribed responsibilities (PRs): New Handbook guidance is introduced on PR allocations, including guidance on the appropriate circumstances for splitting PRs and on the SMF holders to whom FCA-prescribed senior management responsibilities should be allocated.
• Statements of responsibilities (SoRs) and management responsibilities maps (MRMs): Both solo-regulated and dual-regulated firms are given up to 6 months to notify changes to SoRs and MRMs. Firms need only submit the latest version if more than one change was made during the period.
• Certification regime: New guidance clarifies the FCA's expectations of firms when certifying individuals as fit and proper. Certificates may be issued digitally (e.g. by email) rather than issuing a paper based certificate and firms can embed certification into existing HR review processes and conduct the process proportionately when there are no changes from the previous year.
• FCA Directory of certified and assessed persons: Firms are given more time to update most Directory information, with the deadline extended from seven to 20 working days.
• Regulatory references: Handbook guidance reduces the period within which firms must respond to requests for regulatory references from six weeks to four weeks.
• Conduct rules: Clarifying guidance is introduced on notification requirements, regulatory reference expectations where an individual has breached a conduct rule and specified disciplinary action was not taken, and the application of Senior Manager Conduct Rules. In particular, conduct rule breaches by individuals who are not SMF managers performing an SMF role, for example in reliance on the 12-week rule, must be reported as soon as practicable rather than on a collated annual basis. Some guidance on notification requirements and Conduct Rules will also come into effect separately on 1 September 2026 as part of the changes to non-financial misconduct (see previous article here Harassment, workplace relationships and non-financial misconduct: a guide for private capital managers | macfarlanes).

10 July 2026 FCA reforms

From 10 July 2026, the following changes will also come into effect as the final part of the phase one reforms. 

• Prescribed responsibilities: SMF18s at solo regulated firms will be able to hold any PR.
• Enhanced scope SMCR firm thresholds: The FCA has raised certain of the financial thresholds for firms becoming an enhanced scope SMCR firm and created a mechanism to update the thresholds every five years in order to remain in line with inflation. For firms with assets under management the threshold will increase to £65bn, for total intermediary regulated business revenue, the threshold will increase to £45m and for the annual revenue generated by regulated consumer credit lending, the threshold will increase to £130m. The FCA confirms that it will look at the thresholds further as part of phase two, for example in relation to Significant IFPRU and mortgages thresholds.
• Streamlining certification roles: The FCA has removed the requirement for separate certification as:
  • an FCA Material Risk Taker where an individual at a dual regulated firm is also certified by the PRA in one of its certification functions at the same firm;
  • a Significant Management Function holder where the individual is also certified as an FCA Material Risk Taker at the same firm; and
  • the Manager of a Certification Employee if the individual is already certified for another certification function at the same firm.

SMF applications
Although not provided for in phase one, the FCA confirms the steps it has taken to meet the government’s proposed statutory deadline of two months to determine SMF applications announced in the wake of last summer’s Leeds reforms. According to the FCA’s latest quarterly metrics, 94.7% of applications were determined with a two month deadline. The FCA also confirmed that during phase two it will reduce and consolidate the documents required for an SMF application. 

Phase 2

HM Treasury confirms its intention to legislate for the changes it proposed in its consultation last summer. The changes reflect the government’s desire to provide the FCA/PRA with greater powers to design a more proportionate regime. It is also the government’s intention to future-proof flexibility by implementing the regime through regulatory rule books which, unlike the existing statute-based regime, can be amended without parliamentary approval of secondary legislation. The changes proposed are to: 

• Remove the certification regime and provide the FCA/PRA powers to create a rule based regime instead. Although the ambition to reduce the administrative burden on firms is clear, there is still no detail in either HM Treasury’s consultation outcome or the FCA’s policy statement as to what a replacement regime would look like. HM Treasury does, however, confirm that the changes to remove the certification regime will be aligned with the regulators’ development of replacement rules to avoid any lacuna in supervision.
• Reduce the number of senior management functions that require regulator pre-approval. Regulators will be given a new power to specify circumstances where it would be suitable for a firm to notify the regulators of the appointment of a senior manager following the firm’s internal assessment of fitness and propriety. (i.e. some SMF roles would be performed without PRA/FCA approval).
• Repeal the prescriptive legislative provisions relating to Statements of Responsibilities. As with the removal of the certification regime, the intention is for the regulators to set their own requirements for individual responsibility whilst reducing operational burdens on firms. Again, proposals from the FCA on replacement rules remain in the pipeline.
• Streamline the legislative requirements on the conduct rules. HM Treasury plans to retain the legislative provisions which allow regulators to make conduct rules but will repeal the prescriptive legislative requirements on firms to notify regulators of breaches and to conduct mandatory training.
• Give regulators the power to accept senior manager applications subject to time-limits or conditions. To allow greater flexibility, HM Treasury will legislate to allow for firms to apply for SMF approvals subject to conditions or time limits. Currently, although these can be imposed on firms by regulators, firms cannot apply for these directly and, consequently, there can be a stigma effect when such an approval is an appropriate solution.
• Amend the Financial Markets Infrastructure SMCR regime. HM Treasury confirms it will not extend the SMCR at this stage (as provided for in FSMA 2023) to central counterparties, central securities depositories and recognised investment exchanges (FMIs). However, it will as part of the phase two reforms make the equivalent legislative changes to SMCR for these firms to ensure consistency so that the regime can be applied in an aligned way in the future.