Executive Summary
On 15 July 2025, His Majesty’s Treasury (HMT) and the Financial Conduct Authority (FCA), alongside the Prudential Regulation Authority (PRA), launched consultations proposing the most significant reforms to the Senior Managers & Certification Regime (SM&CR) since its introduction in 2016. In common with recent announcements, the reforms have a ‘red tape’ reduction ambition replete with a headline statistic – 50% in this case.
Background and Context
The SM&CR emerged from the Parliamentary Commission on Banking Standards recommendations following the 2007-08 financial crisis and the LIBOR scandal (the fall-out from which continues to play out in UK courts). Its purpose was to enhance individual accountability and is regarded as having been successful in achieving this objective. Indeed, the regime has been mimicked internationally. However, industry feedback following the 2023 HMT Call for Evidence raised material concerns regarding the administrative burden (for regulated firms and indeed the FCA alike) and disproportionate compliance costs.
HMT Legislative Proposals
Whilst preserving the regime’s core accountability principles, the government explicitly targets a 50% reduction in SM&CR regulatory burdens, which reflects broad competitiveness concerns when considering comparable international frameworks in jurisdictions such as like Hong Kong, Australia, Singapore, and Ireland. There are two core proposals here, as follows:
1. Removal of the Certification Regime
Repeal sections 63E and 63F of the Financial Services and Markets Act 2000 (FSMA), thereby removing the statutory Certification Regime. In doing so, the intention is to allow the FCA and PRA Enable FCA and PRA to design a more flexible, proportionate and rules-based regime using existing powers.
In doing so, the following requirements would be removed from FSMA:
- Annual certification of employees as “fit and proper”.
- Requirement to issue annual certificates.
- Mandatory record-keeping of certified employees.
- Duty to provide reasons when certificates are refused.
2. Reform of the Senior Manager Function
Similarly, the HMT proposal intends amend FSMA to give regulators discretion to:
- Limit which roles fall within the regime’s scope.
- Specify which senior management functions require pre-approval.
The intention is to reduce the number of roles needing regulatory pre-approval, focusing scrutiny on higher-risk positions, and allowing firms to directly appoint other managers, subject to notification and firm-level checks. The outcome sought is the easing of administrative bottlenecks and more efficient appointment processes, so preserving accountability where risk is highest.
Additional ‘burden reduction’ measures
Further, the HMT proposes the following changes both of which are intended to allow for proportionate and targeted regulatory (rather than legislative) rulemaking:
- Streamlined Statements of Responsibilities – Removal of prescriptive requirements around provision, maintenance, and updating of Statements of Responsibilities (SoRs).
- Conduct Rules Burden – removal of legislative requirements related to conduct rules training and breach reporting.
Supporting International Talent
The HMT is also exploring options to make it easier to recruit international candidates for senior roles, including via the feasibility of recognising comparable third country regimes and for addressing the complexity of securing criminal records checks and regulatory references for overseas hires.
FCA CP 25/21
The FCA present a first-phase package of SM&CR reforms intended to align with its new growth and competitiveness objective. CP 25/21 delivers nine headline proposals, summarised as follows.
FCA Phase 1 Operational Reforms
Streamlined SMF Approval Process
The FCA propose to improve the SMF application in two fundamental ways:
The Form and System Enhancements:
- Simplified Form A documentation requirements, including integration of the SOR submission and skills gap analysis, competency assessment and learning and development plan can be provided for in a single document.
- A multi-year digitisation program to auto-populate known data, improve validation, and simplify navigation.
- Enhanced website information for applicants, with Improved guidance for international candidates.
FCA Processing Improvements:
- Proposed statutory deadline reduction from 3 months to 2 months.
- 99% of applications currently now determined within statutory 3-month period.
- Median determination time reduced (from current 41 days).
- Target to assess at least 50% of applications within 35 days.
Criminal Records Background (CRB) Checks Reform
Feedback reported that repeated CRB requests within months added cost with no risk benefit. As such, the FCA propose to:
- Extend the validity period of a complete CRB check from three months to six.
- Remove requirement for checks for existing SMFs making internal moves within same firm/group.
Revised, and practicable 12-Week Rule
Current pain point: Firms have 12 weeks to attain regulatory approval when a Senior Manager departs unexpectedly; the statutory 3-month determination window makes breach nearly inevitable if the vacancy arises at short notice.
Proposal: The clock runs only to application submission; the interim appointee may serve past 12 weeks until the FCA determines the application.
The change eliminates reliance on informal forbearance that is the practice today and enables remote interim cover for overseas candidates. The Firm must ensure that the interim appointee is fit and proper and that individual will be subject to the Senior Manager Conduct Rules during interim period. The FCA will does not propose to require specific notification of the exercise of the rule.
Statements of Responsibilities Updates
Rather than require the submission of an updated SoR for every material change, the FCA propose to only require a periodic submission of any and all revised on a periodic basis (no later than 6 months). Additional guidance has also been drafted on what constitutes a significant change requiring notification (including differentiating the meaning for enhanced firms).
Minor Certification Regime Simplification
Ahead of potential legislative changes which will repeal the Certification Regime entirely, the FCA propose to streamline requirements in a few minor ways, as follows:
- Remove need for certification in the following scenarios:
- A Significant Management Function where the individual is also a Material Risk Taker.
- Manager of a certification employee if the individual is already certified in anther function.
- Additional guidance that confirms:
- the validity of digital certification;
- The embedding of re-certification within existing processes such as performance reviews; and
- Proportionate conduct of the certification process when there are no changes from the previous year.
The FCA acknowledges that these changes may apply for a short time only and so offer the option to firms to continue to apply existing approaches.
Directory Notification
The FCA also propose to the extend deadline for routine Directory updates from 7 to 20 business days. Importantly, the seven-day deadline remains for staff departures.
Enhanced Firm Thresholds
Given that the threshold for becoming an Enhanced SMCR firm has remained static since 2016, the FCA propose to raise thresholds byapproximately 30% to account for inflation, as follows:
- Assets under management: £50bn → £65bn.
- Total intermediary revenue: £35m → £45m.
- Consumer credit lending: £100m → £130m.
A mechanical automatic 5-year inflation adjustment proposal future proofs the measure.
Regulatory References
To speed up recruitment and hiring processes, the FCA propose to the reduce recommended response period from six weeks to four.
Conduct Rules Clarification
The FCA does not propose meaningful change to the Conduct Rules at this phase of its work but, rather, suggests that additional guidance will help in the purposeful application of the rules. Specially, it provides enhanced guidance:
- reiterating that only Conduct Rule breaches where specified disciplinary action was taken by the firm need to be notified.
- Highlighting that the notification requirements for breaches under SUP 15.11 are
separate (to any other reporting requirements).
- Clarifies matters that the regulator might expect notification under, and impact of legal privilege of, Senior Manager Conduct Rule 4.
- Clarifying when instances of firm suspending an individual, or reducing/recovering remuneration, need to be notified.
- Clarifying regulatory reference expectations where an individual has breached a
Conduct Rule and but disciplinary action was not taken.
Phase 2 Future Reforms
Subject to HMT legislative changes, the FCA promise to explore how it could exercise the new powers and greater flexibility it would be afforded. Such exploration in a Phase 2 of rulemaking could include:
- Further SMF role reductions or removal of pre-approval requirements.
- Expanded 12-week rule applications.
- Streamlined SMF assessment processes.
- Reduced SoR submission frequency.
- Complete Directory removal with alternative consumer information sources.
- Streamlined Conduct Rule breach reporting.
Practical Considerations for Firms
In the round, it is prudent to await the conclusion of what is to be a lengthy consultation process. Given that these rules are, in many ways, nuanced, compliance teams and staff would be forgiven for the regulatory fatigue that might occur should one attempt to make too many alterations to process ahead of concrete rulemaking. Nonetheless, firms might get ahead by considering the following:
- Governance Mapping: Firms could pre-emptively align their PR allocations with planned guidance to minimise future rewrites.
- HR & Onboarding: HR teams can budget for fewer CRCs and longer directory-update leeway, though be mindful that attaining foreign-records remains challenging.
- Systems Updates: Compliance software vendors will need to adjust workflows for the new submission deadlines; early vendor engagement is advisable.
- Training: Refreshed internal training should highlight altered rules, especially the new 12-week-rule mechanics and CRC policies.
Conclusion
CP25/21 constitutes the FCA’s most significant recalibration of the SM&CR since its 2018 full-sector roll-out. By blending targeted rule tweaks with strategic legislative aspirations, the regulator aims to preserve the regime’s globally admired accountability ethos while stripping out friction that no longer serves that purpose. Firms, trade bodies, and consumer advocates have until 7 October 2025 to influence the final shape of these reforms. Early engagement and internal impact assessments are essential for a smooth transition to a more agile, proportionate SM&CR. Please do contact us for additional detail and discussion on the topic.
Key sources:
FCA: CP25/21: Senior Managers & Certification Regime review
HMT: Consultation: Reforming the Senior Managers & Certification Regime – GOV.UK Reforming_the_Senior_Managers__Certification_Regime_Consultation_2025.pdf
