The Financial Conduct Authority (FCA) has unveiled proposals that could fundamentally reshape the Senior Managers & Certification Regime (SM&CR). Through its consultation, Senior Managers & Certification Regime Review: Phase 2 (CP26/37), the FCA is seeking to reduce regulatory burdens on firms while maintaining the accountability standards that sit at the heart of the regime.
If implemented, these reforms could represent one of the most significant overhauls of the SM&CR since its introduction, and could affect everything from senior manager appointments to fitness and propriety assessments, governance structures and compliance processes.
For FCA-regulated firms, the message is clear: whilst the administrative burden may reduce, accountability is not going away.
What Is the FCA’s SM&CR Review?
The SM&CR was introduced to improve individual accountability within financial services following the global financial crisis. Since then, it has become a central feature of the UK’s regulatory framework, requiring firms to clearly allocate responsibilities, assess the fitness and propriety of certain employees, and ensure senior leaders can be held accountable for failings within their areas of responsibility.
The FCA’s latest review forms part of a broader initiative to support growth and competitiveness within the UK financial services sector. The regulators have been tasked with reducing unnecessary regulatory burdens while preserving consumer protection and market integrity.
The result is a proposed shift towards a more flexible and proportionate framework that gives firms greater responsibility for managing their own governance arrangements.
Key SM&CR Changes Proposed by the FCA
Removal of the Certification Regime
The headline proposal is the removal of the Certification Regime in its current form. At present, firms must conduct annual assessments of employees performing certification functions and certify that they remain fit and proper to undertake those roles.
Under the proposals:
- Annual certification requirements would be removed.
- Certified staff would no longer require formal certification.
- The FCA Directory would no longer be maintained in its current form.
- Firms would retain responsibility for ensuring individuals are competent and suitable for their roles.
For compliance teams, this could remove one of the most resource-intensive aspects of the existing regime. However, firms should not assume that the underlying obligation to assess suitability and competence is disappearing. The FCA will continue to expect firms to have robust systems and controls in place.
Will Fewer Senior Managers Need FCA Approval?
Currently, many senior positions cannot be filled until regulatory approval has been obtained unless one of a small number of exceptions apply. The FCA is proposing to replace approval requirements for certain functions with a notification-based process.
This could mean:
- Faster recruitment and succession planning.
- Reduced delays in appointing senior personnel.
- Less regulatory administration for firms.
- Greater flexibility when filling key governance positions.
Under the proposed notification process, firms would no longer need to wait for regulatory approval before appointing certain notified senior managers. For businesses operating in fast-moving sectors, this is likely to be one of the most welcomed reforms.
Changes to Senior Management Functions
The FCA is also proposing changes to the scope of several Senior Management Functions.
Some positions that currently require approval may instead become subject to notification requirements, whilst the scope of certain group entity senior manager roles may be narrowed.
Although formal approval requirements may be reduced, the FCA would retain powers to intervene where concerns exist regarding an appointment or the governance of a firm.
Simplified Governance and Reporting Requirements
The consultation proposes a number of measures aimed at reducing ongoing compliance obligations.
Potential changes include:
- Reduced requirements relating to Statements of Responsibilities.
- Simplified management responsibility mapping requirements.
- Streamlined prescribed responsibilities.
- Changes to conduct rules training obligations.
- Higher thresholds for certain regulatory reporting requirements.
These proposals reflect a broader shift away from prescriptive documentation requirements and towards an outcomes-based regulatory model.
However, firms should be cautious about removing or reducing governance controls too quickly. If a regulatory investigation arises, the ability to demonstrate decision-making processes, reporting lines and accountability structures will remain critical.
How Could the Proposed SM&CR Reforms Affect Your Business?
Whilst the reforms are designed to simplify compliance, if implemented as proposed they will also place greater reliance on firms to exercise judgement.
Key questions regulated firms should be considering now include:
- How will we assess fitness and propriety if annual certification is removed?
- Do our governance structures clearly allocate responsibility?
- Are our internal records sufficient to demonstrate accountability?
- Could upcoming senior appointments benefit from the proposed changes?
- Do our compliance frameworks rely heavily on existing certification processes?
For many organisations, the challenge will be ensuring reduced regulation does not inadvertently create governance gaps.
What Should FCA-Regulated Firms Do Now?
Although the proposals remain subject to consultation, firms should begin preparing now. Practical steps include:
- Review Governance Structures
Ensure responsibilities remain clearly allocated and documented across senior management teams. - Map Existing Certification Population
Identify employees currently subject to certification requirements and consider how competence assessments may be managed under a revised regime. - Assess Planned Senior Appointments
Businesses considering future leadership changes should monitor developments closely, as proposed reforms may affect appointment timelines and approval requirements. - Review Internal Policies
Fitness and propriety assessments, conduct rules processes and governance documentation may all require updating if the reforms proceed. - Consider Responding to the Consultation
Firms with particular concerns or operational challenges should consider engaging with the consultation process before final rules are implemented.
Frequently Asked Questions About the FCA’s SM&CR Review
Is the FCA abolishing the Certification Regime?
The FCA is proposing to remove the existing Certification Regime requirements, including annual certification assessments. Firms would still be responsible for ensuring individuals are fit and proper to perform their roles.
Will Senior Managers still need FCA approval?
Yes, some roles will continue to require approval. However, the FCA is proposing that a number of functions move to a notification-based process instead.
When could the changes take effect?
The consultation is currently open until 22nd January 2027, with final rules expected following the consultation period. Firms should monitor developments closely and begin assessing the potential impact now.
Will accountability under SM&CR be reduced?
No. Whilst administrative requirements may decrease, the FCA has made clear that individual accountability will remain a central component of the UK’s regulatory framework.
What is the biggest impact for firms?
For many organisations, the most significant change could be the removal of annual certification requirements, coupled with reduced approval requirements for certain senior management roles.
A Shift Towards Smarter Regulation?
The FCA’s proposals signal a significant change in regulatory philosophy. Rather than relying on extensive paperwork and approval processes, regulators appear increasingly focused on outcomes, trusting firms to maintain effective governance while reducing unnecessary administrative burdens.
If the proposals are implemented, this will present an opportunity for regulated firms to streamline compliance processes and reduce costs. However, it will also increase the importance of strong governance, clear accountability and effective internal oversight.
As the consultation progresses, firms should take the opportunity to review their existing frameworks and consider how they might be able to benefit from the proposed reforms whilst continuing to meet regulatory expectations.
How We Can Help
The proposed SM&CR reforms could create significant opportunities for regulated firms, but they may also require careful changes to governance, accountability and compliance frameworks.
Our Commercial & Regulatory team regularly advises FCA-regulated firms, senior managers, boards and compliance professionals on SM&CR obligations, governance reviews, regulatory investigations and regulatory change projects.
If you would like to discuss how the FCA’s proposed SM&CR reforms may affect your business, please contact us. Early planning can help ensure your organisation is well positioned for any changes that emerge from the consultation process.
