FCA Introduces Changes to SMCR: Insights and Explanatory Analysis
UK Financial Regulators Propose Reforms to Streamline Senior Manager Certification Regime
The UK Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), and HM Treasury have proposed reforms to the Senior Manager Certification Regime (SM&CR) with the aim of making it more effective, efficient, and driving growth in the financial services sector.
The proposed changes, outlined in the FCA's 2023-2025 consultations, focus on streamlining the regime to reduce regulatory burdens while preserving its core accountability framework. Imogen Makin, counsel at WilmerHale, comments that these reforms align with the FCA's 2025-2030 strategy.
The reforms consist of two phases: shorter-term rule changes under FCA/PRA (Phase 1) and longer-term legislative changes (Phase 2).
Phase 1 reforms aim to boost efficiency and reduce burdens by: - Giving firms more time and flexibility to submit approval applications for new senior managers after unexpected or temporary changes. - Reducing duplication by stripping out certification of the same individuals in separate functions, potentially cutting certification roles by about 15%. - Providing clearer guidance to firms on streamlining annual 'fit and proper' checks for certified individuals. - Allowing more time for firms to report updates to senior manager responsibilities. - Extending the validity period of criminal record checks prior to senior manager applications. - Helping firms better understand definitions of senior management function roles. - Allowing firms more time to update the FCA’s directory of certified staff.
Phase 2 changes (requiring legislation) under HM Treasury’s proposals include: - The removal of the Certification Regime from legislation, repealing sections 63E and 63F of the Financial Services and Markets Act 2000 (FSMA). - Replacement of the Certification Regime with regulatory rules under FCA and PRA, moving certification out of primary legislation. - Reduction in the number of senior manager roles. - Potential removal of regulator pre-approval requirements for some senior manager roles. - Firms would no longer have statutory duties related to certification, such as issuing annual fit and proper certificates, keeping certification records, or notifying employees of certification decisions.
The overall aim is to reduce regulatory burden and improve the competitiveness and growth prospects of UK financial firms while maintaining high standards of accountability and individual responsibility within senior management.
The government has confirmed that the SM&CR will not be extended to some sectors such as central counterparties (CCPs), recognised investment exchanges (RIEs), central securities depositories (CSDs), or credit rating agencies (CRAs).
These changes are being implemented in two phases, with the latter expected to take longer due to the need for parliamentary approval.
Jill Lorimer, Head of the Financial Services Regulatory team at Kingsley Napley LLP, comments that the proposed changes are an important step in the right direction, particularly the improvements to the process of applying to the regulator for senior management approval.
The success of these reforms will depend on effective implementation and ongoing engagement with all stakeholders. The consultations will close on 7 October 2025.
John Pauley, a representative from the government, notes that these reforms mark a notable shift in how the UK regulates its financial services sector, aiming to make the regime less onerous on firms while continuing to protect consumers and markets, and the safety and soundness of firms.
The reforms reflect an effort to respond to calls from the industry for more proportionate, targeted regulation. Maintaining investor confidence, market integrity, and consumer trust will be crucial for the success of the reforms.
Lorimer also mentions that the proposal to change the '12 week rule' addressing the real challenge where the incumbent has stepped away for the role permanently and needs to be replaced is a welcome development.
These changes are part of the government's efforts to streamline regimes such as the Senior Managers and Certification Regime (SM&CR) and reconsider the reach of Consumer Duty in wholesale markets. The reforms aim to encourage investment and support growth in the financial services sector while maintaining standards safeguarding consumers and the stability of the financial system.
John Pauley's comments indicate a more flexible and innovation-friendly approach to regulation. Lorimer notes that smaller firms are likely to support the proposals as the current structure weighs heavily on firms with fewer senior people, and large firms are likely to welcome the proposal that firms should have more time to update the FCA as to changes in their certified staff.
The coming months will be crucial in determining whether the intended benefits of growth and simplification are realized while preserving high standards that underpin the financial sector.
[1] FCA CP 23/3 (2023) - Senior Managers and Certification Regime: reforms to improve the regime's effectiveness and efficiency [2] HM Treasury Consultation Paper (CP) 12/23 (2023) - Proposals for reform of the Senior Managers and Certification Regime [3] FCA CP 25/21 (2025) - Senior Managers and Certification Regime: further proposals to improve the regime's effectiveness and efficiency [4] PRA CP 1/25 (2025) - Senior Managers and Certification Regime: further proposals to improve the regime's effectiveness and efficiency
- The proposed Regulatory changes, as outlined in FCA's CP 23/3 (2023) and PRA's CP 1/25 (2025), aim to drive growth in the financial services sector by encouraging innovation, with the reforms being part of the government's efforts to streamline regimes like Insurtech.
- The Phase 2 changes, requiring legislation, under HM Treasury’s proposals, are expected to make the Senior Manager Certification Regime (SM&CR) more adaptable, as they propose the removal of regulator pre-approval requirements for some senior manager roles.
- The success of these reforms in the coming months will depend not just on effective implementation but also on fostering a collaborative environment between regulators, businesses, and industry players, ensuring compliance with regulation while encouraging Business growth and maintaining consumer trust.
