Reforming the Senior Managers & Certification Regime: What Firms Need to Know

The Senior Managers & Certification Regime (SMCR) is set for significant change. The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have launched consultations on their proposals to reform the SMCR (FCA CP25/21 and PRA CP18/25). In parallel, HM Treasury (HMT) is consulting on legislative changes to give the regulators greater flexibility to improve the regime’s operation.

These consultations form part of the Leeds Reforms, the UK Government’s wider package of measures designed to enhance the competitiveness of the UK financial services sector.

A Two-Phase Approach to Reform

The reform will be rolled out in two phases:

• Phase 1 – FCA and PRA proposals: Streamline the SMCR, reduce burdens, and improve efficiency while maintaining its core principles.

• Phase 2 – HMT-led legislative changes: Dependent on consultation outcomes but expected to be far-reaching, with HMT aiming to reduce SMCR regulatory burdens by up to 50%.

  
  

While firms will welcome the Phase 1 changes, Phase 2 will require careful balance — any major streamlining must not undermine SMCR’s original objectives: improving accountability, raising conduct standards, and strengthening trust in UK financial services.

FCA and PRA Proposals – Phase 1

The regulators’ proposals aim to improve efficiency and make the regime less onerous, without diluting its effectiveness. Key measures include:

• Greater flexibility in how certain requirements are applied.

• Simplification of administrative processes for firms.

• Retention of SMCR’s principles to maintain high standards of governance and accountability.

HMT Consultation – Phase 2

HMT’s proposals are broader, focusing on legislative reform to allow the FCA and PRA to operate the SMCR more flexibly.

1. Removal of the Certification Regime

The Certification Regime currently requires firms to assess and certify the fitness and propriety of certain employees annually. HMT proposes repealing the relevant FSMA provisions and replacing them with a rules-based regime designed by the FCA and PRA.

This could:

• Reduce the administrative burden.

• Allow more proportionate, adaptable requirements.

• Maintain essential safeguards without rigid legislative prescription.

  
  

2. Reforming Regulatory Pre-Approval for Senior Managers

HMT proposes:

• Allowing the FCA and PRA to determine which Senior Management Functions (SMFs) require pre-approval.

• Creating two categories of senior managers — those requiring pre-approval and those where firms can appoint directly, with notification to the regulator.

This could streamline appointment processes, particularly for smaller and less complex firms, while retaining accountability.

3. Removing Prescriptive Requirements for Statements of Responsibilities (SoRs)

While SoRs remain integral to clarity and accountability, HMT views some current requirements as overly prescriptive. Proposals would remove legislative requirements on the format, maintenance, and updates of SoRs, giving regulators flexibility to take a more proportionate approach.

Implications for Firms

If adopted, these changes could:

• Reduce administrative overheads.

• Speed up the senior manager appointment process.

• Allow for more tailored governance arrangements, especially for smaller firms.

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However, firms should be cautious — streamlining must not mean weakening governance. The FCA and PRA have made clear that maintaining conduct standards remains a non-negotiable objective.

K2 Regulatory Consultants’ Perspective

At K2, we see the SMCR reform agenda as an opportunity for firms to:

• Reassess governance frameworks to ensure they remain robust but proportionate.

• Prepare for dual regimes — the existing framework during Phase 1, followed by potentially significant changes under Phase 2.

• Engage in the consultation process, ensuring sector-specific perspectives are heard.

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We recommend firms start mapping current SMCR processes against the proposed changes now, so they can act quickly when the final rules are confirmed.

Need help preparing for SMCR reform?K2 Regulatory Consultants can assist with:

• Gap analysis of current SMCR arrangements.

• Training for boards and senior managers on the evolving regime.

• Redesign of governance and accountability frameworks in line with new requirements.