UK regulators consult on Phase 2 reforms of SMCR

The UK Financial Conduct Authority (FCA) and UK Prudential Regulation Authority (PRA) have published consultation papers (FCA CP26/37 and PRA CP14/26) setting out the second phase of their reforms to the Senior Managers and Certification Regime (SMCR). The proposals build on the Phase 1 reforms confirmed in April and seek to make the regime more proportionate and easier to operate while maintaining individual accountability and standards of conduct. They also anticipate changes under the Financial Services and Markets Bill 2026 (FSM Bill), which will remove many prescriptive SMCR requirements from legislation and make the regulators responsible for deciding how these requirements should apply in their rules. The regulators are consulting now alongside the FSM Bill so they can make any changes to the rules as soon as possible after royal assent.

Both regulators have sought to align proposals as far as possible to reduce complexity for dual-regulated firms. The proposed reforms would significantly streamline the Senior Managers Regime, including reducing the number of senior management functions (SMFs) requiring approvals and introducing an SMF notification process instead; simplifying the application process; extending the temporary SMF cover rule from 12 to 18 weeks; removing some senior manager prescribed responsibilities; and reducing the frequency of submission of statements of responsibilities and management responsibilities maps. The FCA is also proposing to reduce the number of firms subject to the enhanced regime by raising the relevant threshold.

The regulators also propose removing the Certification Regime and instead relying on other rules to achieve similar outcomes. Under the PRA proposals, this includes removing requirements to assess the fitness and propriety of individuals within scope of its Certification Regime, both on appointment and annually. In addition, the FCA is proposing to retire its directory of certified persons and remove the requirement for firms to provide information on directory persons, simplify conduct rules training and raise the thresholds for reporting conduct rule breaches.

The deadline for responses to both consultations is 22 January 2027. The regulators expect to publish a final policy statement in H1 2027, with a view to implementing the changes around six months later in H2 2027.

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