FCA Consultation Paper proposing reforms of the Senior Managers & Certification Regime

In October 2026, the FCA published its Consultation Paper CP26/37 - Senior Managers & Certification Regime Review: Phase 2. In this article, we summarise the key proposals and consider how they might impact regulated firms.

The FCA are consulting on a package of reforms to streamline and improve the Senior Managers & Certification Regime (“SM&CR”). These build on the first phase of reforms set out in the FCA’s earlier Policy Statement PS26/6 and legislative changes proposed by the Government in the Financial Services and Markets (FSM) Bill 2026 (the “FSM Bill”).
  

The Senior Managers Regime

The FCA’s proposals will reduce the number of Senior Management Function (“SMF”) applications, streamline administrative processes, provide more flexibility when SMF vacancies arise and reduce the number of firms subject to the Enhanced SM&CR firms regime.

Some of the proposals only affect dual‑regulated SM&CR firms and Enhanced SM&CR firms. These include proposals on reducing the number of SMF applications, modifying the scope of SMF7 Group Entity SMF, and changing the thresholds for Enhanced firms. In addition, proposals on time‑limited and conditional approvals will apply to solo‑regulated firms in groups that include dual‑regulated firms, as well as to dual‑regulated and Enhanced firms. Other proposals for changes to the SMR will affect all firms. These include the 12‑week rule, SoRs, PRs at Core firms, and streamlining SMR processes.
  

Fewer SMF approvals

The FCA propose to make several SMF roles at dual‑regulated and Enhanced firms subject to regulatory notification rather than approval. Under SMF notification, firms will appoint certain SMFs by sending a notification instead of applying for approval.

To maintain robust individual accountability among senior managers, the FCA intend notified SMFs to be subject to the same requirements and expectations as approved SMFs. This means:

• Firms will still need to vet these individuals for the SMF roles and complete the same checks before appointing them.

• The Duty of Responsibility and Senior Manager Conduct Rules will continue to apply on an ongoing basis to notified SMFs.,

• Notified SMFs will appear on the Financial Services (FS) Register which will distinguish between functions requiring approval by the regulator and those normally assessed by firms.

In dual‑regulated and Enhanced firms, the SMF regime covers a range of functions. These include non‑executive director roles and SMFs responsible for key oversight and assurance functions. It is proposed that the following SMFs should become notified:

• SMF5 Head of Internal Audit;

• SMF10 Chair of the Risk Committee;

• SMF11 Chair of the Audit Committee;

• SMF13 Chair of the Nomination Committee; (FCA only at dual‑regulated firms);

• SMF14 Senior Independent Director

• SMF12 Chair of the Remuneration Committee;

• SMF15 Chair of the With‑Profits Committee (FCA only at dual‑regulated firms).

Under the FSM Bill, the FCA and PRA could, in certain circumstances, require a firm to seek approval for a function that would otherwise be subject to notification. The FCA say that they expect to use this power rarely, and only where we have specific concerns about a firm. They may use this power for all notified SMFs at a firm. It will apply only to future appointments to those functions.

The FCA also propose removing some SMF roles altogether – they propose to remove FCA‑only functions SMF18 (Other Overall Responsibility) and SMF22 (Local Responsibility), with the associated responsibilities reallocated to other SMFs. The FCA say they have seen these functions used extensively, which can result in many individuals being approved as Senior Managers, including in roles that were not intended to be SMFs.

The SMF7 Group Entity Senior Manager Function currently applies to individuals in a group who exercise significant influence over the activities of an SM&CR firm. The FCA propose to clarify and narrow the scope of the SMF7 function at solo‑regulated firms, by changing the definition to only include individuals who perform specified group or sub‑group functions. To meet the definition of an SMF7, an individual will need to satisfy both limbs of the test: i) they must exercise significant influence over the SM&CR firm’s activities and ii) perform one of the specified functions.

The functions they propose to include in the SMF7 definition broadly mirror the functions the FCA intend to retain as approved functions in Enhanced firms:

• Chief Executive

• Chief Finance

• Chief Risk

• Chief Operations

• Chair of the governing body

• Compliance Oversight

• Money Laundering Reporting Officer

FCA estimate this will reduce the solo‑regulated SMF7 population by about 40%.
  

Time-limited and conditional approvals

The FCA propose to allow dual‑regulated firms, solo‑regulated firms in dual‑regulated groups and Enhanced firms to apply for time‑limited or conditional approvals, including without the need for statutory notices.
  

Raising Enhanced firm thresholds

The FCA propose to raise Enhanced firm thresholds for consumer credit firms from £130 million revenue to £200 million revenue, asset managers from £65 billion AUM to £100 billion AUM and intermediaries from £45 million revenue to £75 million revenue. For wholesale market firms, they propose to replace the existing Significant SYSC threshold with a simpler, asset‑based threshold of £750 million.
   

Temporary SMF cover: 12-week rule

Changes were made in Phase 1 to allow firms that use the rule up to 12 weeks to submit an SMF application rather than to get it approved. The FCA now propose to extend the period for firms to submit an SMF application or SMF notification from 12 to 18 weeks. They are also proposing to remove the requirement that the rule can only be used where the absence of the SMF is “reasonably unforeseen”.
    

Statements of Responsibilities (“SoR”)

The FCA propose to remove the requirement to submit revised SoRs. Firms will still be required to maintain up‑to‑date internal SoRs. They also propose to remove SoR requirements where one individual performs all SMF roles in a firm.
   

Management Responsibilities Maps (“MRM”)

The FCA also propose removing the requirement to submit revised MRMs to the FCA. Once again, firms will still be required to maintain up‑to‑date internal MRMs.
  

Prescribed Responsibilities (“PR”)

The FCA propose removing nine PRs, and retaining only the following PRs:

• For Core and Enhanced firms: A (Senior Managers Regime), D (financial crime) and Z (CASS).

• For Enhanced firms only: J‑3 (oversight of outsourced internal audit).
    

SMF applications, forms and reporting

It is proposed that certain supporting document requirements for SMF applications are removed.
   

MiFID firms report of changes to the management body

Currently, MiFID investment firms and MiFID optional exemption firms are required to report details of their management body and changes to it under the MiFID authorisation and management body change notification Implementing Technical Standards. The FCA propose to remove them for solo regulated firms as part of an SMF or new firm authorisation application and under SUP 15.
  

The Certification Regime

The reforms set out in the FSM Bill will remove the Certification Regime from legislation. The FCA note that stakeholder engagement suggests that the Certification Regime is a significant source of firm burden, creating administrative burdens beyond their usual employment practices, without clear evidence that it enhances individual accountability or consumer protection. Respondents said the regime captures a wide range of roles and requires firms to operate often duplicative processes. These involve tracking around 139,000 individuals performing approximately 261,000 functions. Respondents also said that identifying whether a person is performing a certification function can be complex and burdensome, and issuing certificates and re-certifying individuals annually is particularly burdensome and offers limited benefit.

The FCA propose to remove the Certification Regime completely, although the FCA recognise this “might increase risks to a limited extent”. However, they consider the Certification Regime no longer provides sufficient additional regulatory benefit, relative to its cost, to justify its continued operation as a standalone regime.
  

Fitness & Propriety (F&P) assessment and the ongoing competence and suitability of individuals

Notwithstanding the removal of the certification regime, the FCA say firms will remain responsible for ensuring individuals in relevant roles are competent, suitable and meet appropriate standards of conduct. They point to the existing competent employee rules in SYSC 3.1.6R and SYSC 5.1.1R which already require firms to employ personnel with the skills, knowledge and expertise necessary to carry out the responsibilities allocated to them. Under these rules, most firms are expected to assess an individual’s honesty and competence upon appointment and whenever there is reason to reassess their suitability. The FCA say this a more proportionate and efficient approach that will deliver similar outcomes to the Certification Regime, without requiring firms to formally assess and certify fitness and propriety on an annual basis.

This guidance already applies to most SM&CR firms, but does not apply to insurers, managing agents or the Society of Lloyd’s. The propose to extend it to these firms to ensure consistency and avoid lowering standards for individuals performing equivalent roles.
   

Removal of regulatory references for Certified Persons

The FCA propose to no longer require firms to obtain regulatory references for individuals who were previously certified. Regulatory references will still be required for individuals applying for SMF roles, whether approved or notified.
   

The Directory

The Directory of certified and assessed persons contains information on individuals within the certified population, sole traders and appointed representatives undertaking roles requiring qualification, and non‑SMF directors. The FCA consider that it is proportionate to retire the Directory.
   

Conduct Rules

The FCA are not changing the rules themselves. However, proposed legislative changes will allow the FCA to simplify training and breach reporting requirements and bring currently out‑of‑scope sole traders within the rules.
   

Conduct Rules training requirements

The legislation currently requires firms to take “all reasonable steps” to ensure relevant staff understand the Conduct Rules and how they apply to their roles. While this supported the implementation of a new conduct regime, it has also generated significant operational and compliance costs.

The FCA do not propose to replicate the existing statutory training duty that is being removed from legislation. Instead, they propose a more proportionate and outcomes‑focused requirement that firms ensure all those subject to the Conduct Rules are notified of the Conduct Rules that apply to them and the consequences of breaching those rules.

Firms would not have to provide Conduct Rules training but could choose the most appropriate way to comply with the rule. The FCA say that removing the training requirement will result in significant savings, but they recognise it might also increase the risk of staff not being as fully informed about the Conduct Rules, reducing the deterrent effect of the regime. However, the FCA think this risk is small and the FCA’s changes would achieve an appropriate balance between making sure staff are properly informed and giving firms greater flexibility to meet their obligations in a cost‑effective way.
  

Conduct Rule breach reporting

The existing legislation requires firms to notify the FCA when they take disciplinary action for misconduct that amounts to a breach of the Conduct Rules. FSMA defines “disciplinary action” as a formal written warning, suspension, dismissal or the reduction or recovery of remuneration. The legislative changes will allow the FCA to amend the definition of disciplinary action and make other changes to the reporting regime.

Respondents to earlier consultations told the FCA that identifying and reporting Conduct Rule breaches can be resource‑intensive and costly, often requiring input from multiple teams and external advisers. Currently, firms may also need to carry out detailed assessments for minor incidents of limited regulatory significance that provide little supervisory value.

The FCA propose to make breach reporting more proportionate by targeting more serious misconduct. These changes will reduce firm burden and ensure the FCA only receive information about breaches of regulatory significance. The FCA propose to raise the reporting threshold to final written warning or dismissal for all staff who are not subject to the Senior Manager Conduct Rules. They also propose to replace annual reporting with a requirement to notify the FCA of a Conduct Rule breach within 14 months of imposing disciplinary action. Firms will report only the final disciplinary outcome after any appeal. There will be no change to breach reporting for SMFs.
   

Implementation

The FCA intend to publish their finalised rules in H1 2027 and propose to implement the changes about 6 months later in H2 2027.
  

Our thoughts

These proposed changes, assuming they are implemented, will undoubtedly lessen the burden for impacted firms in meeting the requirements of the SM&CR. In particular, the wholesale removal of the Certification regime will be significant. The removal of requirements around regulatory references for certified staff will also be welcomed.

On the other hand, we consider that these proposed changes to the SM&CR, removing as they do swathes of previous rules and requirements, arguably show that those abandoned or watered down requirements were unnecessary and disproportionate. Regulated firms may feel somewhat aggrieved that they have incurred not inconsiderable costs at least in terms of management and compliance resources in meeting regulatory obligations now apparently deemed unnecessary. The consultation refers to The Government’s Financial Services Growth and Competitiveness Strategy which set a shared ambition between the Government, the FCA and the PRA to reduce the regulatory burden of the SM&CR by 50% and reduce the number of roles at banks and insurers that require approval by 40%. The changes are helpful in that regard, but suggest the obligations were and are unnecessarily burdensome.

Author - David Capps