The FCA, PRA and HM Treasury have each issued consultations setting out reforms to the Senior Managers and Certification Regime (SMCR). 

The package of measures are the latest regulatory proposals intended to reduce the regulatory burden on firms and support the financial services growth strategy, as discussed in our Policy in practice: Labour and financial services - one year on podcast.

The reform of the regime is unsurprising, given that the Chancellor committed in last year’s Mansion House speech to consulting on the removal of the certification regime. 

The intention is to improve regulatory efficiency and reduce the ongoing costs that SMCR imposes on firms and the FCA without compromising the aims of the regime. 

Key changes

The Treasury consultation proposes to remove the existing certification regime. Although some colour has been provided on the reforms envisaged, it is still not clear what the reformed regime will look like in its entirety. HM Treasury consults on the proposal for the FCA and PRA to establish a rule based, proportionate regime. It asks for feedback on what the critical elements of such a replacement regime should be. 

Other key proposals are to: 

• reduce the number of senior manager roles by providing the FCA/PRA with greater flexibility in specifying the list of Senior Manager Functions (SMFs) which require pre-approval;
• remove the requirement for pre-approval by the FCA/PRA for some SMF roles; and
• provide more flexibility for firms when notifying the FCA of updates to Statements of Responsibilities (SoRs) for Senior Managers.

The FCA consultation sets out proposals for solo regulated firms over two phases. This is due to the current regulatory framework for SMCR, which was implemented through both amendments to the Financial Services and Markets Act 2000 and FCA rules. Changes in phase 1 can be made without legislative reform using the FCA’s existing rule making powers. However, the proposals in phase 2 will require legislative change and, potentially, further powers to be granted to the FCA. The FCA acknowledges that changes proposed to the certification regime in phase 1 may potentially be short lived depending on how quickly the HM Treasury proposals take effect. Given this background, the FCA confirms that firms can choose to continue to apply their existing approach where relevant rather than adopt the new proposals until the certification regime is replaced. 

The key FCA proposals for phase 1 include:

• reforming the 12-week rule, which allows someone to cover for a Senior Manager without being approved, under certain conditions. The FCA proposes changing this rule so that firms have 12 weeks to submit an application for an SMF approval rather than 12 weeks to obtain a decision on such an application. The FCA also proposes to give illustrative examples as guidance on when the 12-week rule can be used. For SMF departures that are reasonably foreseen, firms should make use of succession plans and notice periods to undertake their recruitment, and not rely solely on the 12-week rule;
• streamlining the SMF approval process, including making changes to the Form A to reduce or consolidate the required information. (The FCA will also provide more information about the SMF approval process on its webpages);
• increasing the validity period of criminal record checks for SMF applications from three to six months and removing the requirement for firms to undertake criminal record checks where an SMF holder is applying for an SMF in the same firm or group. For ongoing fitness and propriety assessments, the FCA confirms that firms may choose to undertake criminal record checks where needed (especially where they have not conducted one for some time);
• allowing more time to report updates to SoRs by permitting changed SoRs to be submitted on a periodic basis and no later than every six months after the previous submission;
• removing overlap in certification roles and provide guidance on annual certification to help firms streamline the process. In particular, the FCA proposes to remove 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 (Material Risk Taker, Significant Risk Taker, or Key Function Holder) 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;
• allowing more time for firms to update specified information on the FCA’s directory of certified and assessed persons publicly available on the FCA register (the Directory). Save for updates on staff departures which will remain subject to a seven working day notification requirement, for most other updates, the FCA proposes extending the notification period for Directory updates to 20 business days;
• changing the guidance so that firms are expected to provide regulatory references within four weeks of any request by a hiring firm; and
• raising the thresholds for becoming an “enhanced scope SMCR firm”. For 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 also proposes to create a mechanism to update the thresholds every five years in order to remain in line with inflation. 

The FCA states that if HM Treasury’s consultation proposals are implemented, it intends, in phase 2, to: 

• design a streamlined regime to replace certification in a way that minimises burden and complexity while ensuring the fitness and propriety of individuals;
• reduce the number of SMF approvals, by removing SMF roles and/or reducing pre-approvals;
• provide more flexibility to appoint interim SMFs before seeking approval by expanding the use of the 12-week rule;
• further streamline the SMF assessment process;
• reduce the frequency of submission of SoRs, review the list of prescribed responsibilities and simplify the requirements for management responsibilities maps;
• remove the Directory and explore with industry alternative ways to ensure consumers have other sources of information; and
• streamline Conduct Rule breach reporting.

Firms have until 7 October 2025 to respond to both HM Treasury and the FCA’s consultations. An FCA policy statement is expected by mid-2026.