HMT, FCA and PRA Publish Long-Awaited Proposals to Reform the UK SM&CR

As part of the Leeds Reforms announced during the Chancellor’s annual Mansion House speech on 15 July,¹ HM Treasury (HMT) has published a consultation paper which proposes to “radically streamline” the Senior Managers and Certification Regime (SM&CR) – a proposition which, if followed through, will no doubt be welcomed by the insurance industry.

In addition, the FCA and PRA have each published consultation papers (respectively, CP25/21 and CP18/25) which introduce “Phase 1” of their proposed reforms, with the aim of reducing the regulatory burden to drive competitiveness and growth while maintaining high standards of personal accountability and financial stability. The papers also look ahead to “Phase 2” of the reforms, which will involve the regulators working closely alongside HMT as it consults on legislative changes to reshape key aspects of the regime. 

The SM&CR, made up of the Senior Managers Regime, the Certification Regime and the Conduct Rules, was introduced in 2016 and has applied to insurance firms since 2018. Responses to HMT’s call for evidence and the regulators’ joint discussion paper² revealed that the financial services industry has concerns about the SM&CR’s complexity and the burden which it places on firms, particularly in comparison to other jurisdictions. In response, and as part of HMT’s growth strategy, HMT proposes to reform legislative aspects of the regime while the PRA and FCA will seek to streamline the regime.

HMT’s legislative proposals

HMT’s consultation paper presents three main legislative changes to the SM&CR.

First, HMT has proposed scrapping the Certification Regime, which applies to staff in roles below senior manager level that involve, or could involve, a risk of significant harm to the firm or its customers. Scrapping the regime would remove various requirements for firms, including the requirement to:

1. take reasonable care that no employee performs a Certification Function unless certified as “fit and proper” to do so;
2. have regard to PRA and FCA rules as to the circumstances in which an employee is “fit and proper” to perform a role; and
3. issue annual certificates stating that the firm is satisfied that the person is fit and proper to perform the function to which the certificate relates.

However, it is intended that the Certification Regime will be replaced by a more proportionate rules-based regime developed by the FCA and PRA, and any replacement regime is likely to have similar requirements to those being scrapped. The intention behind removing the Certification Regime is that a new rules-based regime would allow the PRA and FCA more flexibility to adjust rules and respond to changes in the sector.

Secondly, HMT is proposing two significant changes to the Senior Managers Regime to make it more flexible and proportionate. These are:

1. reducing the number of senior manager roles by allowing the FCA and PRA greater flexibility in specifying the list of Senior Management Functions which require regulatory pre-approval; and
2. removing the requirement for pre-approval for some senior managers by granting the FCA and PRA greater discretion to determine which roles require approval and which can be managed through firm-led processes, subject to notification requirements and proportionate systems and controls.

Finally, HMT has asked for feedback on other areas with a view to easing the burden of the SM&CR, including:

1. removing requirements around how Statements of Responsibility are maintained and updated;
2. removing Conduct Rule requirements that create disproportionate burden; and
3. developing ways of enabling firms to recruit international talent.

The regulators’ proposals

The proposals from the FCA and the PRA are split into two phases. The consultation papers focus on Phase 1, which looks at reforms that are designed to reduce the regulatory burden on firms. The proposals include:

1. changing the 12-week rule so that, rather than requiring firms to have received a decision within 12 weeks following a Senior Management Function (SMF) application, firms would instead be required to submit the SMF application within 12 weeks of the relevant appointment. Once submitted, the relevant person could continue to perform the SMF under the 12-week rule until the application was determined by the FCA;
2. streamlining the SMF approval process;
3. reducing or consolidating documentation to be submitted with the FCA’s Form A (used to apply for an individual to perform an SMF role) to improve its usability;
4. extending the validity period of criminal record checks used in SMF applications from three to six months;
5. publishing further guidance on certain areas of the SM&CR, including on the scope of the SMF7 (Group Entity Senior Manager) and SMF18 (Other Overall Responsibility) functions;
6. raising the financial thresholds for becoming an Enhanced SM&CR firm by 30% in line with inflation; and
7. decreasing the timeframe within which firms must provide regulatory references to within 4 weeks of the request to speed up the hiring process (although the PRA has diverged in its approach and avoided setting any deadline for regulatory references).

Whilst the proposals indicate small changes to the SM&CR, rather than a complete overhaul, the Phase 1 proposals are likely to be welcomed by stakeholders who have raised concerns around the regulatory burden associated with complying with the SM&CR. However, firms should keep in mind that the proposed changes may place a different burden on firms. For example, the change to the 12-week rule may result in unapproved persons, who are ultimately unsuitable, holding SMF positions for longer periods, which could result in more pressure on a firm’s oversight of its senior managers.

Phase 2 will involve working with HMT to explore how HMT’s legislative proposals will allow the regulators to streamline the SM&CR. Changes that the FCA and PRA are looking to explore in Phase 2 include:

1. further expansion of the 12-week rule to allow flexibility to appoint interim SMFs before seeking approval;
2. reducing the number of SMF approvals, by removing SMF roles or reducing pre-approvals;
3. streamlining the SMF assessment process;
4. designing a streamlined regime to replace certification in a way that minimises burden and complexity; and
5. streamlining Conduct Rule breach reporting.

Next steps

The consultation papers are presented as a coordinated effort to simplify the SM&CR framework in support of UK competitiveness and growth. Both the FCA and PRA have expressed broad support for HMT’s direction, and have invited stakeholders to identify additional unnecessary burdens and barriers, indicating an openness to further reform.

All three consultations close on 7 October 2025 with the PRA and FCA expected to publish final policy statements in mid-2026.

Trainee solicitor, Michael Popp, assisted in the preparation of this briefing.

Footnotes

1. Other reforms announced at the same time include the introduction of the Captives Regime covered here.
2. Covered in our April 2023 bulletin.