Reforming the UK Senior Managers & Certification Regime

November 2025  |  FEATURE | BANKING & FINANCE

Financier Worldwide Magazine

November 2025 Issue

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have outlined proposals to reform the Senior Managers and Certification Regime (SM&CR), aiming to make it more efficient and less burdensome for firms while preserving core standards of accountability. This first phase of reforms coincides with a separate government consultation on legislative changes, which includes plans to remove the certification regime and grant regulators greater flexibility in determining which ‘senior management functions’ (SMFs) require pre-approval. The joint proposals from the FCA and PRA are intended to support growth in financial services while maintaining consumer protection and sector stability.

The proposed changes to the SM&CR seek to streamline the regime, reduce regulatory burdens and enhance the UK’s competitiveness as a global financial centre. These reforms align with the FCA and PRA’s new secondary objective of promoting international competitiveness and growth. The deadline for responses to the consultation is 7 October 2025.

Why reform was inevitable

The SM&CR was introduced in stages following the 2008 financial crisis to improve governance and individual accountability within financial services firms. However, the regime – particularly the certification regime – has faced criticism for imposing disproportionate administrative burdens. In light of efforts to boost growth and attract international talent, the government initiated a review of the SM&CR.

In December 2022, the previous government announced that HM Treasury, the FCA and the PRA would begin reviewing the regime. In March 2023, the FCA and PRA jointly published Discussion Paper DP1/23, inviting views on the regime’s effectiveness, scope and proportionality, and on potential improvements. HM Treasury also launched a ‘Call for Evidence’ to examine the legislative framework underpinning the regime.

Following these consultations, significant reforms have been proposed. In November 2024, the chancellor reiterated the Labour government’s intention to remove the certification regime from legislation and replace it with more proportionate arrangements.

From burden to balance: rethinking the SM&CR

The three consultations – by HM Treasury, the FCA and the PRA – present complementary but distinct proposals.

HM Treasury’s consultation proposes removing the certification regime from the Financial Services and Markets Act 2000 (FSMA), including the following provisions: the duty for firms to ensure that no employee performs a ‘certification function’ unless certified as fit and proper; the requirement to consider FCA and PRA rules when issuing certificates; the obligation to issue certificates annually; and the requirement to maintain records of certified employees.

While some of these requirements may reappear in a new rule-based regime, regulators would have greater flexibility to design a more proportionate framework that can adapt over time.

The FCA’s consultation focuses on operational reforms and supervisory efficiency. The PRA’s proposals aim to enhance proportionality and align the UK’s SM&CR framework with international standards. Both regulators have indicated that a second phase of reforms may follow, contingent on legislative changes.

One of the more nuanced aspects of the proposed reforms is the emphasis on improving regulatory agility. By shifting from rigid statutory obligations to a rule-based framework, the FCA and PRA intend to create a system that can evolve in response to market developments, technological innovation and emerging risks. This flexibility is particularly important in a financial landscape increasingly shaped by fintech, decentralised finance and cross-border operations.

The PRA’s proposals include changes to the regulatory determination of SMF applications, particularly the 12-week rule; clarification of who falls within the scope of the senior managers regime, including the ‘group entity’ (SMF7) function; improvements to the application and operation of SM&CR components; and tools to help firms navigate the regime, such as a ‘policy index’ and clearer inventory of senior manager responsibilities.

Another key theme is the drive to reduce duplication and administrative friction. Firms have long expressed frustration with overlapping requirements between the FCA and PRA, particularly in relation to certification and conduct rules. The proposed reforms aim to harmonise expectations and reduce the need for firms to interpret subtly different guidance from each regulator. This could lead to more consistent supervisory outcomes and lower compliance costs.

The FCA’s proposals include: improving the efficiency of the 12-week rule; streamlining the SMF approval process; extending the validity period of criminal record checks; allowing more time to report updates to ‘statements of responsibilities’; reducing overlap in certification roles; providing guidance on annual certification; allowing more time to update directory information; clarifying the applicability of key SMF roles and prescribed responsibilities; updating guidance on regulatory references; raising thresholds for becoming an ‘enhanced’ SM&CR firm; and making technical changes to the FCA Handbook to align with PRA proposals.

In addition to structural changes, the FCA and PRA are exploring ways to improve transparency and accessibility for firms subject to the regime. This includes clearer guidance documents, simplified reporting templates, and enhanced digital tools for submitting applications and updates. These improvements are intended not only to reduce errors and delays but also to foster a more collaborative relationship between firms and regulators.

What comes next

All consultations are scheduled to close on 7 October 2025. Final policy statements are expected in mid-2026. While the precise shape of the reforms remains subject to consultation feedback, there is a growing consensus around the need to modernise the SM&CR. By aligning the regime with international standards, the government aims to foster growth and maintain high standards of accountability in financial services.

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Richard Summerfield