In 2023, the Financial Conduct Authority (the FCA) and the Prudential Regulation Authority (the PRA) published a joint discussion paper on the review of the effectiveness, scope and proportionality of the Senior Managers and Certification Regime (SM&CR), which was introduced in the wake of the 2008 financial crisis to enhance the responsibility and accountability of certain individuals within financial services firms. In parallel, HM Treasury (HMT) launched a call for evidence to look at the legislative aspects of the regime (see more detail including a summary of the existing SM&CR framework in our blog post).
Today, three new consultations were published by HMT, the FCA and the PRA, each proposing significant reforms to the SM&CR. These proposals aim to streamline the regime, reduce regulatory burdens, and enhance the UK’s competitiveness as a global financial centre (noting the FCA and PRA’s new secondary objective of international competitiveness and growth). The deadline for responses is 7 October 2025.
This blog post breaks down the key proposals and considers their potential impact.
What are the key proposals?
As the SM&CR framework is set in legislation, HMT’s consultation considers potential legislative changes to the regime while the regulators’ consultations propose an initial set of ‘phase 1’ reforms that can be delivered without legislative change. If legislative changes are made, it will enable wider changes to be made by the regulators to increase flexibility in the SM&CR’s application. If this happens, a ‘phase 2’ set of proposals may therefore be put forward in due course.
HMT consultation – proposed legislative reform
HMT’s consultation proposes the most fundamental changes to the SM&CR, focusing on legislative reform.
- Abolition of the Certification Regime. One of the most substantial proposals is the complete abolition of the Certification Regime. Under the current framework, firms are required to certify individuals annually as ‘fit and proper’ to perform their roles. HMT suggests removing this formal requirement, leaving space for the regulators to use their rule-making powers to develop a more flexible and proportionate regime. It remains to be seen what the new landscape might look like (the consultation does acknowledge that the same or similar requirements might feature in any new regime established by the regulators), but a re-write of the rules could help to reduce the administrative burden on firms.
- Streamlining the Senior Manager Function (SMF) approval process. The consultation also proposes major changes to the legislation that sets the framework for the Senior Managers Regime, with a similar objective to increase flexibility and proportionality. In particular, HMT is considering removing the requirement for regulatory pre-approval in certain low-risk cases, making it possible for regulators to focus pre-approval on some senior manager roles (while for others, firms could conduct checks themselves and notify regulators of new appointments). This could mean a significant shift in how firms conduct and document appointments, and may ultimately help improve the efficiency of onboarding.
- Removing prescriptive requirements relating to Statements of Responsibilities (SoRs). HMT acknowledges that while SoRs are a key tool for ensuring individual accountability, the current requirements to provide, maintain and update SoRs can be overly prescriptive and duplicative, particularly when individuals hold multiple roles or when responsibilities overlap across functions. To address this, the consultation suggests introducing greater flexibility in how firms draft and maintain SoRs, allowing regulators to adopt a more proportionate approach. Such changes may require firms to revisit job descriptions, employment contracts and governance documentation to ensure consistency with revised SoRs.
FCA and PRA consultations – proposed regulatory reform
The FCA’s consultation complements HMT’s legislative proposals by focusing on operational reforms and supervisory efficiency, whilst the PRA’s consultation focuses on enhancing proportionality and aligning the UK’s SM&CR framework with international standards. Some of the more significant proposed ‘phase 1’ reforms from both regulators are explained below.
- Simplifying the SMF assessment process. Aligning with the HMT consultation, one of the FCA’s central proposals is making the SMF assessment process more straightforward. Going forwards, FCA proposals include making changes to ‘Form A’ to set out that some of the documentation requested in that form can be reduced or consolidated where appropriate, hopefully reducing the time it takes to complete the form. In addition, the PRA proposes to update its guidance to give firms and candidates a better understanding of the SMF determination process, a move that is intended to support UK firms’ ability to attract talent from the UK and abroad.
- Improving flexibility of the 12-week rule. The existing 12-week rule allows firms to appoint an individual to cover for a SMF (who might be absent or who unexpectedly leaves), without being approved by the regulators, where the absence is temporary or reasonably unforeseen and the appointment is for less than 12 consecutive weeks. The regulators acknowledge that they do not always give firms sufficient flexibility to manage changes in SMFs, so propose to give firms 12 weeks to apply for full approval (rather than 12 weeks to get a decision on an application). Under this proposal, the person performing the SMF role would be subject to the Senior Manager Conduct Rules during the 12-week period (and beyond until the SMF application is determined). Alongside this, FCA and PRA guidance will be updated to set out clearer expectations around use of the 12-week rule and to add non-exhaustive examples regarding the circumstances in which the rule can be used.
- Amending the criminal record checks process. Another part of the assessment process is the requirement for criminal record checks. Regulator proposals include setting the validity period for criminal record checks obtained for an SMF candidate to six (rather than three) months and removing the requirement for firms to undertake criminal record checks where an existing SMF holder is applying for an SMF in the same firm or group. These proposals should provide firms with more time to use criminal record checks already obtained for an SMF candidate as part of the due diligence process in the SMF application and reduce the burden and costs for firms for internal moves.
- Making SoRs more straightforward. In its consultation, the FCA welcomes views on amendments to Prescribed Responsibilities in certain circumstances. Ultimately, any changes to Prescribed Responsibilities will require updates to SoRs and internal governance documents. The FCA proposes to streamline the submission of updated SoRs, by allowing periodic submissions (such that firms would no longer need to submit them to the FCA each time they make a change, but periodically every six months). Solo-regulated firms could therefore gather all SoRs that had changed across the previous six months and submit only the latest version of each, all at once. For dual-regulated firms, the PRA proposes that they would have up to six months to submit updated SoRs, but if more than one change was made during the period, they would still be required to submit all relevant versions (and a similar approach will be taken to Management Responsibilities Maps). Despite these changes, firms are reminded that SoRs are ‘living documents’ and as such firms should amend SoRs internally as soon as significant changes in Senior Manager responsibilities occur and not delay updating the documents until the submission is due.
Other proposals from the FCA include amending the thresholds for becoming an Enhanced SM&CR firm, streamlining the process of certification and re-certification and amending its scope (which may only apply for a short time if legislative changes to remove the Certification Regime proceed quickly), reducing the scope of the Directory of certified and assessed persons, amending the guidance to firms to provide regulatory references to within four weeks of the request (the PRA makes clear that it will not set such a time period for response), and adding guidance to further support firms in considering how to apply the Conduct Rules.
Likewise, the PRA makes specific proposals in respect of the scope of the SMF7 (Group Entity Senior Manager) role and the approach to resolution administrators. This will involve revising guidance to give firms more clarity as to who is in scope of the SMF7 designation, amending the SMF7 definition to bring in scope controllers who apply significant influence over the day-to-day management or conduct of the firm’s affairs, and exempting some resolution-related roles from the SM&CR.
What’s next?
Across all three consultations, there is a clear consensus on the need to simplify and modernise the SM&CR, in line with the UK regulators’ international competitiveness and growth objective. This shared direction suggests that significant change is likely, and firms should begin preparing for a shift in how they assess and document employee arrangements and governance structures, ultimately ensuring that accountability and governance remain robust.
Responses to all consultations are requested by 7 October 2025, following which the authorities will consider the responses before implementing any reforms to the SM&CR.
For more information on this topic in the meantime, please speak to the authors of this blog post or your usual Freshfields contact.
