The FCA and PRA on 22 October 2026, published parallel consultations setting out the second phase of reforms to the Senior Managers and Certification Regime (SM&CR). The proposals represent the most significant changes to the regime since its introduction, substantially reducing its administrative burden while retaining its central focus on individual accountability.
SM&CR reform has been split into two phases. The regulators implemented Phase 1 changes in April 2026, covering reforms possible without legislative change. Phase 2 follows proposed statutory changes in the Financial Services and Markets Bill 2026 and is considerably more ambitious.
The proposals include replacing regulatory pre-approval with notification for a significant number of Senior Management Functions (SMFs), removing the Certification Regime, streamlining Prescribed Responsibilities (PRs), Statements of Responsibilities (SoRs) and Management Responsibilities Maps (MRMs), and significantly simplifying Conduct Rules training and breach reporting. The FCA also proposes raising thresholds for firms entering the Enhanced regime and retiring its Directory.
Taken together, the proposals signal a shift in how accountability is administered rather than a retreat from individual accountability itself. Firms will face substantially fewer regulatory processes, but regulators are likely to place greater reliance on firms' own governance, controls and judgement.
In this article
What does this mean?
Senior Manager approvals
One of the most significant changes is the proposed reduction in SMFs requiring regulatory pre-approval. The PRA proposes moving almost half of its existing SMFs to notification, while the FCA would move a number of functions to notification and remove SMF18 (Other Overall Responsibility) and SMF22 (Local Responsibility) altogether.
The treatment of SMF7 (Group Entity Senior Manager) would also change significantly. For solo-regulated firms, the FCA proposes narrowing SMF7 so that it applies only where an individual both exercises significant influence over the regulated firm and performs one of a specified set of senior group roles, including Group CEO, CFO, CRO, COO, Chair, Compliance Oversight or MLRO. The FCA estimates this could reduce the SMF7 population at solo-regulated firms by around 40%.
For dual-regulated firms, the PRA proposes splitting the function between pre-approved SMF7s and notified SMF7 roles. This could be particularly significant for international groups where overseas executives currently hold SMF7 roles.
For notified roles, firms would assess an individual's fitness and propriety and notify the relevant regulator rather than waiting for regulatory approval before an appointment takes effect. Notified Senior Managers would remain subject to individual accountability requirements, including the Duty of Responsibility and Senior Manager Conduct Rules.
These changes should provide greater flexibility and predictability around senior appointments, but also place greater responsibility on firms to demonstrate that their own appointment and fitness and propriety decisions are robust.
The regulators also propose extending temporary SMF cover from 12 to 18 weeks, providing greater flexibility when managing vacancies and succession.
Certification Regime
Perhaps the most significant reform is the proposed removal of the Certification Regime.
The FCA estimates that around 139,000 individuals currently perform approximately 261,000 Certification Functions. The PRA separately identifies around 7,700 individuals within its Certification Regime. Annual certification, associated fitness and propriety assessments and regulatory references for Certified Persons would largely disappear.
This does not remove firms' responsibility for workforce competence and conduct. Instead, the regulators propose relying on wider requirements for firms to ensure employees have appropriate competence, integrity and suitability. Firms will therefore need to determine which elements of existing Certification processes can genuinely be stopped and which remain valuable as internal controls.
Conduct Rules
The FCA also proposes material changes to how the Conduct Rules are administered. The requirement for specific Conduct Rules training would be removed and replaced with a simpler requirement to notify employees of the rules applying to them and the consequences of breach.
For most non-SMF employees, the threshold for reporting Conduct Rule breaches would increase to a final written warning or dismissal, with firms generally no longer expected to determine whether lower-level misconduct constitutes a Conduct Rule breach where it would not be reportable.
These changes could significantly reduce Compliance, HR and Legal processes associated with lower-level conduct cases, while giving firms greater discretion over how they embed appropriate conduct standards.
Responsibilities and governance
The proposals would reduce the regulatory administration associated with SoRs and MRMs. Firms would generally continue to maintain these documents internally, but would no longer routinely submit updated versions to regulators. The FCA and PRA also propose significantly streamlining PRs.
This provides an opportunity to simplify governance processes, but firms will still need to demonstrate clear ownership and allocation of responsibilities. Accountability documentation may therefore become more of an internal governance control and less of a regulatory submission exercise.
Enhanced firms
For solo-regulated firms, the FCA proposes materially increasing numerous thresholds for entry into the Enhanced regime. The asset management threshold would rise from £65bn to £100bn AUM, the consumer credit threshold from £130m to £200m revenue, and the intermediary threshold from £45m to £75m revenue. For wholesale firms, the existing Significant SYSC test would be replaced by a £750m assets threshold.
Affected firms should assess whether they would move outside the Enhanced regime and which elements of their existing SM&CR framework would consequently cease to be required.
A rebalancing of regulatory risk
The proposals form part of a broader shift towards a less prescriptive and administratively intensive regulatory framework. Importantly, the FCA acknowledges that removing some regulatory processes may increase certain risks, but considers these proportionate to the benefits of removing requirements whose regulatory value does not justify their cost.
The result is a shift from regulator-led process and preventative gatekeeping towards greater firm-led judgement and accountability. Less regulatory process does not mean less accountability: firms will have greater autonomy, but correspondingly greater responsibility for demonstrating that their governance and controls remain effective.
What do firms need to do?
Assess the impact: Map which SMFs, Certification Functions, PRs and Enhanced regime requirements would cease or change.
Redesign controls: Determine which Certification, fitness and propriety, Conduct Rules and governance processes can be stopped or simplified, and which should be retained as internal controls.
Prepare for implementation: Treat the reforms as an operating-model simplification opportunity rather than simply another SM&CR compliance exercise.
The proposals create a significant opportunity for firms to simplify their SM&CR operating models. Firms should assess the end-state accountability framework they want to operate rather than simply removing individual processes as requirements fall away.
In particular, firms should consider whether their governance and fitness and propriety arrangements provide sufficient assurance where regulatory pre-approval will be less common. Groups should also map their existing SMF7 population against the proposed FCA and PRA approaches, particularly where overseas group executives currently hold SMF7 roles.
Firms should determine which elements of Certification should be retained voluntarily to support competence and suitability, and review Conduct Rules processes across Compliance, HR and Legal to identify where training, disciplinary and reporting arrangements could be simplified.
Finally, firms should revisit SoRs, MRMs and PRs. Although routine regulatory submissions would reduce, clear allocation of responsibility remains fundamental to SM&CR and firms will still need to demonstrate effective accountability when required.
Implementation should therefore be approached as an opportunity to redesign the accountability operating model, balancing reduced regulatory burden against the need to preserve effective governance and individual accountability.
Next steps
Both consultations close on 22 January 2027. The FCA expects to publish final rules in H1 2027, with implementation expected in H2 2027. PRA implementation is also expected in H2 2027, subject to legislation and HM Treasury commencement.
Contacts
Dan Perks
Follow us
