Briefing

Key update on SM&CR reforms

In April and May 2026 we saw developments in the overhaul of the Senior Managers and Certification Regime. On 22 April 2026, HM Treasury published its SM&CR reform consultation response and the FCA and the PRA published Phase 1 policy statements¹, finalising near-term rule changes deliverable under existing powers.

The Government, the FCA and the PRA share an ambition to reduce the overall regulatory burden of the SM&CR by 50% while maintaining robust individual accountability; the Phase 1 package represents the first step towards that shared goal. Further reductions depend on the passage of primary legislation and delivering Phase 2 reforms. The necessary reforms to legislation were included within the Financial Services and Markets Bill, introduced to the House of Lords on 19 May 2026.

Background

The SM&CR has been undergoing review since 2023. HMT consulted formally on reforming the SM&CR legislation in a consultation dated 15 July 2025. The April 2026 document sets out the Government’s final reform package. The underlying concern the reforms are seeking to address is that, whilst the SM&CR was introduced following the financial crisis to improve confidence in regulatory oversight, in practice some requirements do not deliver governance or conduct benefits commensurate with their administrative cost and inhibit proportionate, risk-based supervision.

The FCA and PRA ran parallel consultations in mid-2025 on Phase 1 changes, namely those capable of delivery in the near term under existing powers.

Key changes

HMT’s legislative proposals

The Consultation Response indicated that the Government intends to make legislative changes including the following:

Removing the Certification Regime from FSMA. This is intended to enable the regulators to replace the Certification Regime with a more proportionate and flexible framework through their rulebooks. HMT confirms it will align commencement with developing replacement rules to avoid gaps and smooth transition. The regulators expect to use existing rule-making powers to ensure continued suitability of individuals below senior manager level.

Reducing SMF pre-approval requirements. HMT intends to legislate so that regulatory pre-approval is no longer always required for senior manager appointments, giving regulators a new power to specify circumstances in which firms can instead notify appointments after conducting their own fitness and propriety assessment. Individuals appointed via notification would remain “senior managers” subject to the same SM&CR obligations, and regulators would retain powers to require pre-approval from specific firms even where a function can instead be notified.

Statement of Responsibilities (SoR) — repealing prescriptive legislative provisions. HMT will repeal the prescriptive legislative provisions governing SoRs in FSMA 2000, enabling regulators to set more proportionate requirements in their rulebooks. Consultation feedback highlighted that current statutory SoR obligations can force frequent updates for minor or temporary changes and respondents favoured an approach that limited updates to material or permanent changes with clear guidance on materiality thresholds.

Streamlining Conduct Rules. HMT will retain powers in the legislation for regulators to make Conduct Rules but repeal the prescriptive legislative requirements for firms to notify regulators of breaches and to conduct mandatory training. This will mean regulators can consider appropriate rules that should apply to reporting and training.

Additional legislative measures. Since the consultation, HMT says that it has identified a small number of additional proposals that will assist with removing regulatory burden. HMT will legislate to empower regulators to accept senior manager applications subject to time-limits or conditions without triggering statutory notice requirements, providing flexibility for firms to make interim appointments. However, statutory notice requirements will continue to apply where the regulator refuses an application outright or seeks to vary or impose conditions and/or time limits that differ from those applied for. HMT has also proposed to shorten the regulators’ statutory deadline for determining senior manager applications from three months to two months; with the FCA and PRA already reporting against the two-month timeframe on a voluntary basis.

Since the Consultation response was published the Financial Services and Markets Bill 2000 was introduced to the House of Lords on 19 May 2026, and at the time of writing had reached committee stage. The Bill contains legislation to implement the above reforms along with other Leeds reforms.

Phase 1 implementation dates

The FCA confirms that most Phase 1 changes took effect on 24 April 2026, with improvements to regulatory reporting and processes applying from 10 July 2026 and certain COCON guidance changes taking effect from 1 September 2026. The PRA’s rule and supervisory statement amendments likewise took effect on 24 April 2026, although system changes to forms – including long Form A, short Form A and Form E – are not implemented until 10 July 2026; Form L changes apply from 24 April 2026. A similar mismatch arises on the FCA side: certain rule changes, including to criminal records check requirements, are already in force, but the relevant FCA forms will not be updated until 10 July 2026. Firms should not treat outdated form wording as indicating that the underlying rule changes are not yet operative.

FCA policy statement PS26/6 and PRA PS12/26

The FCA and PRA have implemented a number of measures, some of which are already in effect. These include the following:

The 12-week rule. The FCA and the PRA have changed the Senior Managers Regime so that firms have 12 weeks to submit an SMF application (rather than to submit and receive approval within that period), with candidates able to act in the role until determination. The Senior Manager Conduct Rules will apply to anyone performing an SMF role on an interim basis. This took effect on 24 April 2026. Where such an individual breaches the Senior Manager Conduct Rules during the cover period, the FCA requires firms to report that breach under SUP 15 as soon as practicable.

SMF7 – Both the FCA and the PRA are making changes relating to SMF7. The FCA is publishing additional Handbook guidance to clarify the scope of SMF7 and reduce the number of individuals inadvertently captured. The PRA will amend guidance to clarify which individuals are in scope of Group Entity SMF7, extend SMF7 to controllers and their representatives who exert significant influence over a PRA-authorised firm’s day-to-day management regardless of group structure, and exempt certain resolution-related roles from the SM&CR. These PRA-specific reforms will apply to all PRA-authorised firms. The FCA acknowledged that the regulators consulted on different approaches, reflecting their distinct statutory objectives, but stated that the PRA’s changes are separate from, and do not conflict with, the FCA’s proposals.

Senior Management Functions and Prescribed Responsibilities (PRs). The FCA will provide guidance on PR allocations, including when it is appropriate to split PRs and how to allocate them to SMFs. From 10 July 2026, a rule change will allow a SMF18 at a solo-regulated firm to hold any PR.

SoRs and Management Responsibilities Maps. Both solo and dual-regulated firms have up to six months to notify changes to SoRs and Management Responsibilities Maps. Where more than one change occurs in that period, only the latest version need be submitted. This change took effect on 24 April 2026.

Regulatory references. The FCA has reduced the expected response time for regulatory references from six to four weeks, implemented via Handbook guidance rather than a binding rule in order to retain flexibility. The FCA guidance addresses incomplete investigations where an individual departs before conclusion, indicating firms should consider including suspected misconduct if it is material and properly grounded, but should not base references on unproven allegations or mere suspicions. The FCA also provides guidance on when a Conduct Rules breach without specified disciplinary action should, or need not, be included in a reference depending on its relevance to the recipient firm’s fitness and propriety assessment. The PRA has not set its own response time expectation, taking the view that the FCA’s four-week Handbook guidance is sufficient for all SM&CR firms without the need to duplicate it in the PRA Rulebook.

Certification process. The FCA has clarified in guidance that firms may issue certificates by email and may embed certification within annual appraisal cycles. From 10 July 2026, the requirement to certify the same individuals for multiple overlapping certification functions will be removed – the FCA estimates this will affect approximately 15% of current certification roles. The PRA has clarified that it has no set expectation regarding the form or procedures used for annual certification assessments; firms may build on existing systems but must record satisfaction that an individual is fit and proper and must allocate PR B to an accountable SMF.

Enhanced Firm thresholds: From 10 July 2026, certain Enhanced Firm thresholds will increase by approximately 30%. A new mechanism for automatic 5-year threshold reviews will also be introduced to prevent thresholds from becoming outdated.

Conduct Rules: From 1 September 2026, certain COCON guidance changes will take effect, including new guidance on Conduct Rule breach notification requirements and Senior Manager Conduct Rule 4. Changes to COCON that align with the FCA’s separate policy statement on non-financial misconduct (PS25/23) will also apply from 1 September 2026. Firms should ensure their Conduct Rules training and policy materials reflect all three Phase 1 effective dates.

Next steps

The FCA intends to consult on Phase 2 proposals later in 2026, subject to the passing of the relevant legislation. The PRA similarly plans to consult on further reforms but has not committed to a specific date, framing its timetable as subject to legislative timings.

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