Here’s the latest from the FCA, plus some reaction from the industry;
In the first phase of reforms to the Senior Manager Certification Regime (SM&CR), the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are proposing to streamline the regime to make it more effective and efficient and to drive growth in financial services.
As the government consults on legislative changes to the regime – including removing the Certification Regime and increasing flexibility for the regulators to reduce the number of senior management functions (SMFs) which require pre-approval – the regulators’ proposals aim to make the regime less onerous on firms, while continuing to protect consumers and markets, and the safety and soundness of firms.
The consultations, which have been informed by the regulators’ 2023 Discussion Paper, includes proposals to:
- Give firms more time and flexibility to submit applications for approving new senior managers when there has been an unexpected or temporary change.
- Strip out duplication where the same individuals are certified for separate functions, which would reduce the number of certification roles by 15%.
- Provide guidance on how to streamline the annual checks firms need to undertake to certify individuals are ‘fit and proper’ to do their role.
- Allow more time for firms to report updates to senior manager responsibilities.
- Increase how long criminal record checks for senior manager applications are valid for, prior to application submission.
- Help firms to better understand the definition of certain SMF roles.
- Give firms more time to update the directory, which lists certified staff.
The SM&CR holds individual senior managers in financial firms accountable for their conduct and competence.
Nikhil Rathi, FCA chief executive, said:
“Integrity and accountability at the top matter, which is why there is widespread support for the Senior Managers and Certification Regime. We are proposing streamlining the rules, so they work better for industry and support competitiveness and our approach to outcomes-based regulation, while maintaining the high standards the regime has set.”
Sam Woods, chief executive of the PRA and deputy governor for prudential regulation at the Bank of England, said:
“High standards of accountability are important for maintaining confidence in our financial services industry. Today’s changes will reduce the burden of the Senior Managers and Certification Regime without diluting accountability, and we will work with the government on further reforms.”
This consultation will close on 7 October 2025.
KINGSLEY NAPLEY LLP
Jill Lorimer, Head of the Financial Services Regulatory team at Kingsley Napley LLP, comments:
“Firms will welcome these proposals. Introducing changes to reduce the compliance burden on firms while maintaining the principles of the regime is an important step in the right direction. Particularly notable is the suite of proposed improvements to the process of applying to the regulator for senior management approval. Clarifying the application form, providing better guidance to firms and expediting the procedure should be ‘quick wins’ for the regulator.
The FCA intends to look at whether the current suite of senior manager roles could be rationalised and providing better guidance on how prescribed responsibilities should be allocated. Smaller firms in particular are likely to support these proposals, as the current structure weighs particularly heavily on those firms with fewer senior people. 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: currently, this is a significant burden for large firms with a large certified population. However, firms may be disappointed that little in the way of substantial change is proposed in respect of the certification process more generally.
Firms will however welcome a change to the current ’12 week rule’. This is the provision which allows firms to appoint a person to cover for a senior manager who is unexpectedly absent for a period of up to 12 weeks. In practice, this timeframe poses real challenge where the incumbent has stepped away for the role permanently for whatever reason and needs to be replaced: it is almost impossible for firms to identify, recruit and gain the necessary regulatory approval for a new candidate within that time, after which the firm is technically in breach. The proposal is that firms should have 12 weeks to apply for the approval of the new candidate, rather than 12 weeks to obtain approval. This addresses what has always been a real anomaly: firms finding themselves in breach for no reason other than delays on the part of the regulator in determining approval applications. More importantly, it means that firms can take the time it needs to find the right candidate for the role.
While no major changes are proposed in respect of the conduct rules, it is good to see that some clarification may be provided as to the requirement to report breaches to the regulator and also the interaction between breaches of the conduct rules on one hand and fitness and propriety on the other. One welcome development would be the proposed removal of ‘suspension’ from the definition of a disciplinary action giving rise to a reporting obligation: this would recognise, rightly, that suspension is often a neutral act while enquiries are being made and it may well be that no breach as in fact occurred.
On regulatory references, it is proposed to provide guidance on what should be included in a reference where a person leaves the firm before any investigation into potential misconduct has taken place. In practice this is a thorny issue with which many firms struggle, seeking to balance their regulatory responsibilities against fairness to the individual. Clear pointers on what is expected in this not unusual scenario would be very well received.
Overall, this represents a thoughtful package of measures: while there is no single scene-stealer, these proposals would collectively alleviate some of the compliance burden in a way likely to be welcomed by industry.”
WILMERHALE
Commenting on the FCA’s consultation proposing reforms to the Senior Managers & Certification Regime (SM&CR), published recently, Imogen Makin, counsel at WilmerHale, said:
“The FCA’s consultation paper on streamlining the Senior Manager Certification Regime (SM&CR) will be welcomed by many and is in line with the FCA’s 2025-2030 strategy, announced at the end of March.
“One of the FCA’s aims is to reduce the burden on firms, while maintaining standards and the importance of individual accountability. Proposals to streamline the Senior Management Function (SMF) approval process and improve the efficiency of the 12-week rule allowing someone to cover for a Senior Manager without being approved, for example, are likely to be a step in the right direction.
“However, this consultation is only one part of a much broader consultation on reform of the SM&CR and sits alongside the Prudential Regulation Authority (PRA)’s consultation, together with the Treasury’s consultation on potential legislative reforms, which will inform phase 2 of the FCA’s reforms.
“Phase 2 could entail the removal of SMF roles or reducing pre-approvals, for example. All firms subject to the SM&CR should, therefore, keep a close watch on the results of the consultations and the timeframe for any resulting amendments to the SM&CR. The changes are likely to be significant and while they will undoubtedly create work in the short term, will likely reduce the burden on firms in future.”
HARPER JAMES
Commenting on what this means for firms going forward, John Pauley, Financial Services Partner at law firm Harper James, says:
“The government’s reforms unveiled in Leeds mark a notable shift in how the UK regulates its financial services sector. From a regulatory perspective, these proposals reflect an effort to encourage investment and support growth while remaining mindful of the standards safeguarding consumers and the stability of our financial system.
“Streamlining regimes such as the Senior Managers and Certification Regime and reconsidering the reach of Consumer Duty in wholesale markets demonstrates the Government’s responsiveness to calls from the industry for more proportionate, targeted regulation. Similarly, clarifying the remit of the Financial Ombudsman Service and introducing new avenues for long-term investment aim to address business and investor needs without compromising core protections.
“It is important, however, to watch how these reforms are put into practice. Maintaining investor confidence, market integrity, and consumer trust will depend on effective implementation and ongoing engagement with all stakeholders. While these measures indicate a more flexible and innovation-friendly approach, the success of any reforms will hinge on achieving the right balance between encouraging competitiveness and maintaining reputable, robust oversight.
“As the FCA recognises in its 2025–2030 strategy to rebalance these risks, we must acknowledge that while the majority may benefit, a minority may not get the outcome for which they hoped. The coming months will be crucial in determining whether the intended benefits of growth and simplification are realised, while preserving the high standards that underpin our financial sector.”
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