Background

These consultations follow a HMT call for evidence in March 2023,and  a joint PRA and FCA discussion paper.  Based on feedback received, the government considered – as set out in the Chancellor’s Mansion House speech in November 2024 – that the SMCR had played a key role in improving standards and accountability across the financial services sector, but acknowledged the administrative cost and frictions that the SMCR places on firms.  In line with the Financial Services Growth and Competitiveness Strategy the reforms now being proposed aim to make the regime more proportionate – reducing the regulatory burden of the SMCR by 50%.  Some reforms are being led by HMT as they require legislative change; the remainder are being taken forward by the PRA and FCA.

HMT consultation

The consultation covers two key proposed changes: removal of the certification regime from legislation (to be replaced in future by a regime under PRA and FCA rules); and reduction of the number of senior manager roles and for some senior manager roles removal of the requirement for regulator pre-approval.  It is worth noting that the government currently does not plan to extend SMCR to apply to central counterparties (CCPs), recognised investment exchanges (RIEs), central securities depositories (CSDs) and credit ratings agencies (CRAs).

Removal of the certification regime

HMT is proposing to repeal the provisions of the Financial Services and Markets Act 2000 (FSMA) that established the certification regime – sections 63E and 63F.  Key consequences of this for firms would include that they no longer 

• have a duty to take reasonable care that no employee performs a certification function unless certified by the firm as fit and proper to do so; 
• have to issue annual certificates stating they are satisfied people are fit and proper
• have regard to regulators’ rules on fitness and propriety; 
• have to keep records of every employee who has a valid certificate; or 
• have to give notice to a person setting out proposed steps and reasons where they decided not to issue a certificate to a particular person.  

However, the intention is that the regulators will establish a new rule-based regime to replace the certification regime that may well contain some of the same or similar requirements.  That would however give the regulators flexibility to tailor the regime appropriately across roles and firms and to adjust them over time.  This change could also potentially counteract the arguably over-zealous approach to fitness and propriety that is currently being consulted on in relation to non-financial misconduct.

Senior manager regime changes

The way in which it is proposed to reduce the number of senior manager roles is to vary the definition of “senior management function” in section 59ZA of FSMA – which refers to any functions that might involve a risk of serious consequences for either the firm or wider UK interests – so that it can be tailored according to the size and complexity of firms.  This should result in smaller and simpler firms only needing to apply for a very limited number of roles.

Further, it is proposed to revise section 59 FSMA so that not all senior manager roles would require pre-approval.  The aim would be to allow the regulators to make rules specifying which senior manager roles would no longer require pre-approval. These senior managers would be subject to fitness and propriety assessment by the relevant firm with corresponding notification to the relevant regulator.  However, the regulators would continue to have the existing powers in respect of both categories of senior manager.

Statement of Responsibilities (SoRs)

The regulators are proposing changes in relation to SoRs, to the extent permissible under existing legislation.  However, HMT is consulting on which prescriptive legislative requirements should be removed in relation to the provision, maintenance and updating of SoRs to permit the regulators to adopt a more proportionate approach.

Conduct Rules

HMT is open to removing overly prescriptive requirements from the FSMA in relation to the conduct rules, for example in relation to training and breach reporting if firms consider they create a disproportionate burden.

Other potential reforms

HMT is open to making other legislative changes that would assist a more proportionate regulatory approach.  One area that has been identified is whether changes are needed to support the movement of international talent.  Feedback from firms will be key to making the SMCR as proportionate and workable as possible. 

PRA consultation

The PRA consultation sets out changes as part of phase 1 of reform that can be made to its rules without legislative change, to make the regime less burdensome and more flexible, thereby enhancing the competitiveness and growth of the UK by lowering compliance costs and supporting the flow of international talent to the UK.  The proposals would result not only in changes to parts of the PRA Rulebook, but also to SS28/15 Strengthening individual accountability in banking; SS35/15 Strengthening individual accountability in insurance, and SS5/21 International banks: the PRA’s approach to branch and subsidiary supervision.

SMF application and determination process

The PRA notes that the regulators have resolved the historic backlog through increased resourcing and by making operational improvements.  The PRA has an ongoing internal improvement programme.  However, if new legislation is adopted, a phase 2 consultation could assist in defining which roles require pre-approval and which could be subject to firms’ assessment of candidates fitness and propriety (this view is shared by the FCA).

12-week rule

The PRA emphasises that firms should have in place appropriate notification periods for SMFs as well as clear succession plans, and therefore does not propose to change the scope of the rule.  However, the PRA is proposing to amend the 12-week rule.

The 12-week rule currently allows individuals to perform SMF roles on an interim basis without regulatory approval for up to 12 weeks within any 12-month period, only if their firm has an SMF vacancy that is a) temporary or b) reasonably unforeseen.  The PRA proposes to amend this rule so that firms must submit a complete SMF application within 12 weeks of the unforeseen departure or temporary absence of the SMF holder, rather than requiring the that the full approval process (including regulatory approval) is completed within 12 weeks.  Regulators would then have a further (statutory) 3 months to review and take a decision on the application, during which time the individual may continue acting in the role.

Where a firm decides to initiate a recruitment process for a permanent appointee which takes longer than 12 weeks, it will need to apply for approval of an interim candidate until a permanent candidate is identified.

The PRA further proposes to apply the Senior Manager Conduct Rules to individuals operating under the 12-week rule (currently such individuals are only subject to the individual conduct rules).  This will support accountability of those appointed to new roles where they are able to take key operational decisions.

The PRA is proposing to include non-exhaustive examples in the relevant supervisory statements as to when the rule can be used.

Statements of responsibility (SORs) and management responsibility maps (MRMs): under the proposed approach to the 12-week rule, the PRA would not expect firms to submit updated SoRs to the PRA until an absence has reached 12 weeks.  However, internally firms would need to maintain updated SoRs, MRMs and prescribed responsibilities (PRs) would need to be reallocated during the period of absence.

The PRA will be monitoring whether the rule is being used correctly.

Fitness and propriety tests

The PRA has clarified that there will be no automatic ‘fast track’ for candidates who have previously been approved as an SMF or who have been approved in another jurisdiction or similar accountability regime.  The PRA will update its guidance on the SMF determination process.

Engagement with industry on the SMCR approval process

The PRA has and will continue to engage with industry and trade bodies to understand trends and challenges and improve understanding of requirements and expectations in relation to SMF applications.

Group entity senior manager (SMF7)

If new legislation is adopted, phase 2 of SMCR reform may reconsider the framework for defining and assigning SMFs.  However, under phase 1 only SMF7 is under consideration.

The SMF7 role currently applies to individuals who have significant influence over the management or conduct of one or more aspects of the affairs of a firm in relation to its regulated activities and who are employed by (or are an officer of) a parent undertaking or holding company of a firm, or another undertaking which is a member of the firm’s group.

As requested by firms, the PRA is proposing to provide further, non-exhaustive, guidance on who is in scope of the SMF7 designation and associated requirements.  Further, the PRA is proposing to widen SMF7 definition to bring in scope controllers and representatives who apply significant influence over the day-to-day management or conduct of the firm’s affairs in relation to its regulated activities, regardless of the legal structure of the group.  This is only expected to capture a small number of individuals.  The PRA clarifies that investors could be represented on a PRA-authorised firm’s board as notified non-executive directors without becoming an SMF7.  It further comments that where a change in control would result in the identification of one or more SMF7s those cases could be processed in conjunction with the change in control application and should not have a detrimental impact on the assessment timeline.

Resolution-related SMCR exemptions

The PRA is proposing that certain appointments concerning people appointed by the Bank of England or HMT to manage or oversee a bank or building society in stressed conditions should be exempted from SMCR on the basis that they are already subject to a statutory appointment process, the limited number of individuals available to perform such roles and circumstances may mean confidentiality is essential.  The exemption would last for a specified term, and such people would not be subject to the senior manager conduct rules but the individual conduct rules would still apply.

SoRs and MRMs

Legislation requires firms to provide an updated SoR if there has been any significant change in the responsibilities of an SMF holder, but does not specify a time period for doing so.  The PRA is proposing to set an expectation of no later than 6 months for submitting the updated SoR, but that would not apply where a firm had been notified by it supervisor to submit earlier, where the revised 12-week rule was being used, or where earlier submission is required to comply with Fundamental Rule 7 (eg significant and wide reallocation of responsibilities across the firm’s senior managers).  Firms should still update documents internally as soon as changes occur, rather than waiting until submission is due.  The PRA is proposing a similar approach in relation to MRMs.

Prescribed responsibilities (PRs)

The PRA has decided not to propose a reduction in, nor consolidation of, the number of PRs as part of phase 1 SMCR reforms.  Nor is it proposing to change the small firm threshold, which would affect the number of applicable PRs.

Regulatory references

The PRA is proposing to provide guidance clarifying that where an internal investigation into misconduct relevant to the assessment of fitness and propriety was commenced but disciplinary procedures were not concluded because the individual left the firm, firms should consider whether or not to include details of this in the reference.

The PRA is not proposing to reduce the window for responding to a regulatory reference to four weeks (which is being proposed by the FCA).  Looking forward, phase 2 of the reforms may reduce the number of roles requiring firms to seek a regulatory reference as part of the hiring process.

Criminal record checks

The PRA is proposing to amend the period for requiring a criminal records check to be undertaken, from 3 months to 6 months before an application is submitted.  However, all relevant information must be included in a PRA SMF application form, so if an offence was committed but not included in the criminal records check because of the specific timing involved then this must still be declared in the application.

Reasonable steps under the senior manager conduct rules

Given the reasonable steps a senior manager could, or should have, taken will be fact and case specific, the PRA is not proposing to add to existing guidance on this point.

Other changes

The PRA is proposing other minor changes to assist firms, including clarification in relation to form of certificates under the certification regime, and making it easier for firms to navigate the various requirements of the SMCR regime.

FCA consultation

The FCA stated that the feedback it received supported its view that the SMCR is helping to advance its operational objectives and support the UK’s competitiveness, but that it could be more efficient and streamlined thereby reducing unnecessary or low value compliance costs to firms.

Foreign candidates considering performing SMF roles

Whilst the FCA is aligned with the PRA on this issue in that there will be no fast-tracking of overseas individuals holding approval in another jurisdiction, the FCA will under the revised 12-week rule allow candidates temporarily performing the role and for who an SMF application has been submitted to perform the role from abroad until the application is determined.  After approval, senior managers need to spend time in the UK consistent with their responsibilities.

Criminal records checks

In line with the PRA proposal, the FCA is proposing to extend the period of validity of a criminal record check for an SMF application from 3 to 6 months.  Further, the FCA is proposing to remove the criminal record check requirement where an existing SMF holder is applying for an SMF in the same group.  Firms could still choose to undertake the check, particularly if one had not been done for some time.  The FCA will continue to expect criminal records checks to be carried out for both domestic and foreign candidates, notwithstanding the challenges in getting checks from foreign countries.

12-week rule

The existing FCA 12-week rule aligns with that of the PRA.  The FCA acknowledged that the 12-week rule does not always give firms flexibility to manage changes in SMFs.  The FCA’s proposed changes to the 12-week rule align with those of the PRA, including timing of SMF application, when an interim SMF application should be submitted, guidance on when the 12-week rule can be used, that people performing an SMF role under the 12-week rule would be subject to the senior manager conduct rules during the 12-week period and beyond until the SMF application is determined, any PRs held by an absent SMF would still need to be reallocated to other SMF(s), and the updating of SoRs and MRMs.

The FCA clarifies that it will not be introducing a rule requiring firms to notify the FCA routinely of the use of the 12-week rule, but instances of use of the rule may be reportable for other reasons e.g. in accordance with principle 11.

Additionally, the FCA proposes strengthening the 12-week rule by proposing a rule and guidance that firms should ensure the individual performing the role under the 12-week rule is fit and proper, and that firms should submit a good quality application.

SMF7 Group entity senior manager at solo-regulated firms

The FCA is proposing additional guidance to help firms determine whether a person is captured by this function, although the applicability of the SMF7 function depends very much on the specific situation of a firm.  The FCA expects its guidance to reduce the number of SMF7 applications made by solo-regulated firms.  Dual regulated firms will need to refer to the PRA’s proposed guidance on the SMF7 function.

SMF18 other overall responsibility function

The FCA is proposing additional guidance on when the SMF18 function applies.  The FCA expects this to reduce the number of SMF18 applications by dual-regulated and enhanced solo firms to which the function applies.

Prescribed responsibilities

The FCA’s position aligns with that of the PRA.  However, for solo-regulated firms the FCA is proposing removing the restriction that PRs cannot be allocated to SMF18 as there may be some cases in which it would be appropriate to do so.  However, dual-regulated firms would still need to apply to both regulators for a waiver.

The FCA is also proposing guidance on the allocation of FCA-designated prescribed responsibilities (including, for dual-regulated firms, PRs shared with the PRA).  The FCA notes that it would not expect firms to reconsider their PR allocations simply to align with the proposed guidance. 

Thresholds for becoming an enhanced SMCR firm

For the three of the six thresholds that are linked to financial criteria, the FCA is proposing to increase them, based on historical inflation data, by approximately 30%.  There will also be a mechanism to update the thresholds periodically to remain in line with inflation – every five years so that firms do not drop in and out of the enhanced regime due to frequent changes.  The FCA estimates that 20-30 firms currently categorised as enhanced may fall below the revised thresholds.  Firms that have opted up to enhanced will remain enhanced unless they choose to opt down.  It is noted that the thresholds already have proportionality built in as they operate on a 3-year rolling average with a one-year transition period before moving into the enhanced SMCR category.  This should also help mitigate the potential risk of firms moving in and out of the enhanced regime.

Duty of responsibility and reasonable steps

The FCA acknowledges the overlap between the senior manager conduct rules and the duty of responsibility, and that in many cases following either route would lead to the same result. The FCA however considers that the duty of responsibility continues to perform a useful role, and that this overlap does not cause significant issues and is generally handled effectively by firms.

The FCA is aligned with the PRA in not proposing to provide further guidance on ‘reasonable steps’ given the wide variety of situations and contexts in which reasonableness can be considered.

SoRs and MRMs

The FCAs proposals on SoRs and MRMs align with those of the PRA, however solo-regulated firms could submit the latest SoRs and 1 MRM for the preceding 6 months, whereas dual-regulated firms – in line with the PRA proposal – would still have to submit all versions of SoRs and MRMs but would have 6 months to do so.  The FCA is also proposing to set out additional guidance on what constitutes a ‘significant change’ to an SoR.

On MRMs, the FCA proposes guidance that when making linked SMF applications, firms may submit 1 MRM showing the future state assuming all the SMFs are approved.

Certification regime

Pending adoption of legislation removing the certification regime, the FCA is proposing the following changes and clarifications:

• Certificates can be provided digitally and not in hard copy
• Re-certification can be embedded within existing processes such as performance reviews, and the process can be conducted proportionately when there are no changes from the previous year
• De-duplication
  • An individual performing a PRA certification function (material risk taker, significant risk taker or key function holder) would not also need to be certified as an FCA material risk taker at the same firm;
  • An FCA material risk taker would not also need to be certified as a significant management function holder at the same firm;
  • A person performing a certification function would not also need separate certification as manager of a certification employee.
  • Duplicative roles would not be in scope of the regime and would not appear on the Directory.
• Senior managers may need to be certified where the role is distinct and separate from their SMF role.
• The time period for updating Directory information would be extended from 7 to 20 days. However staff departures would still need to be notified within 7 working days.

Regulatory references

The FCA is proposing to amend the guidance on the timescale for providing regulatory references from 6 weeks to 4 weeks (the PRA is not proposing an equivalent change).

The FCA is also proposing guidance on what may need to be included in a regulatory reference if an employee leaves the firm before an investigation into potential misconduct was concluded.

Additionally, a change is proposed to clarify that regulatory references need to be provided to firms applying for authorisation and not only to firms already authorised (albeit the FCA believes this was already happening in practice).

Conduct rules

The FCA is proposing additional guidance on the application of the conduct rules, primarily in relation to notifications to:

• Reiterate that only conduct rule breaches where specified disciplinary action was taken by the firm need to be notified to the regulator
• Highlight that the notification requirements for breaches under SUP15.11 are separate to any other reporting requirements
• Outline matters that a regulator might expect notification about under senior manager conduct rule 4 (information may need to be disclosed even if it is referred to in parallel legally privileged communications)
• Clarify the impact of legal privilege and senior manager conduct rule 4
• Clarify when cases in which the firm suspended an individual, or reduced or recovered their remuneration, need to be notified to the regulator
• Clarify regulatory expectations where an individual has breached a conduct rule and disciplinary action was not taken.

Helpfully, the FCA is also proposing guidance that where someone is suspended to remove someone from work before an investigation into a conduct rule breach has concluded, rather than as a sanction resulting from the breach, this would not be reportable as a conduct rule breach under SUP 15.11.  Similarly, where someone’s remuneration has been reduced or recovered, this is only reportable under SUP15.11 if the reason was a sanction arising from a conduct rule breach, requiring personal culpability.  Further, as a conduct rule breach does not inherently make someone not fit and proper, the FCA is proposing guidance that not all conduct rule breaches need to be included in regulatory references.  However, for a conduct rule breach to be omitted from a regulatory reference it must not have been the subject of disciplinary action and it must not be sufficiently serious to impact the individual’s fitness and propriety.

Next steps

The deadline for responding to all three of the consultations is 7 October 2025.

Firms should consider submitting a response, particularly if they would like further changes to the regime not already captured in these consultations.

The final regulatory requirements are expected in mid-2026.