FCA finalises Phase 1 SM&CR reforms: what firms need to do now

The validity period for criminal records checks (CRCs) for SMF candidates extends from three months to six months, and CRCs are no longer required for internal or intragroup moves, removing duplicative cost and administrative burden. Firms should note a practical transitional point: the rule change applies from 24 April 2026, but the relevant FCA application forms will not be updated to reflect this until 10 July 2026, meaning form wording may temporarily not align with the updated requirements.

Under the revised 12-week rule, firms have 12 weeks to submit an SMF application (rather than to obtain approval), and the individual covering the SMF role may continue in post until the FCA determines the application. Senior Manager Conduct Rules will now apply to non-SMFs performing SMF roles under the 12-week rule, increasing individual accountability during interim cover arrangements and requiring firms to reconsider how they brief and supervise covering individuals.

Where non-SMFs perform SMF roles, including under the 12-week rule, firms must report breaches of Senior Manager Conduct Rules via SUP 15 "as soon as practicable," rather than waiting for the annual notification cycle via Form H/REP008. To avoid double reporting, firms do not need to report via REP008 where they have already reported the same breach under SUP 15, but governance processes should be updated to ensure SUP 15 reports are captured and filed promptly.

The FCA is adding guidance to help firms assess whether an individual falls within scope of SMF7 (Group Entity Senior Manager), with the aim of reducing unnecessary SMF7 applications where the individual does not genuinely meet the intended threshold. For SMF18 (Other Overall Responsibility) and SMF22 (Other Local Responsibility), the FCA removes the "equal status to executive directors" language but reiterates that the SMF18 holder should be the most senior individual reporting to the governing body, firms should review their current allocations to ensure continued alignment.

The FCA is introducing further Prescribed Responsibility (PR) guidance, including circumstances in which splitting a PR between multiple SMFs may be appropriate, and clarifying that PRs can be allocated beyond the "most likely"/"harder to justify" examples in the rules where the allocation genuinely fits the firm's seniority and authority structure. From 10 July 2026, a rule change will permit SMF18 holders at solo-regulated firms to hold any PR — firms should assess whether their current PR allocations remain appropriate in light of this flexibility and plan for any realignment that may be needed in Phase 2.

Solo and dual-regulated firms will be able to notify Statement of Responsibilities (SoR) changes, and Management Responsibilities Map (MRM) changes where relevant, on a batched basis of up to every six months, and only the latest version need be submitted where multiple changes occur in any given period. However, firms must still prepare revised SoRs internally as soon as a significant change occurs, batching applies to submission to the FCA only, not to internal record-keeping obligations, and firms should ensure their governance frameworks reflect this distinction clearly.

‍

The FCA has clarified expectations for the annual Fit and Proper re-certification process, including confirming that digital certification is acceptable and that firms may adopt a proportionate approach to re-certification where there have been no material changes since the previous assessment. Certificates must be in writing but need not be physical, email is acceptable, and firms may embed the certification process into other existing processes such as annual appraisals, provided that SM&CR standards are still properly met and documented.

From 10 July 2026, overlapping duplicate certification requirements will be removed, which is estimated to affect approximately 15% of certified roles, reducing the administrative burden of maintaining multiple certifications for the same individual. To avoid firms incurring the cost of Directory updates as a result of this change, the FCA will itself remove duplicate roles from the Financial Services Register and the Directory, and existing forms for ongoing updates will remain unchanged.

‍

Firms will have more time for most Directory person updates, with the deadline extending from seven to 20 working days for the majority of updates, while retaining the seven working day deadline for reporting staff departures, reflecting the heightened consumer harm and fraud risk associated with individuals no longer working for a firm. The amended SUP reporting rules reflect this "20 days / seven days for leavers" structure, and the FCA has emphasised that prompt reporting improves the accuracy and reliability of the Directory for consumers and other firms.

‍

FCA guidance now reduces the expected response time for regulatory references from six weeks to four weeks, with the aim of reducing delays in recruitment processes without compromising the quality or accuracy of references provided. Where an employee leaves before an internal investigation concludes, firms must consider carefully whether suspected misconduct should be included in any regulatory reference, weighing materiality, evidential basis, fairness, and any applicable legal constraints, and must not include adverse information based on unproven allegations or mere suspicion.

‍

The FCA is proceeding with conduct rules guidance but has removed the proposed expanded guidance on when conduct rule breaches should be reported under SUP 15.11 and has amended the SC2 guidance by removing the phrase "report the matter without delay" to bring it into closer alignment with the SC4 wording. Certain conduct-related changes, aligning with PS25/23 and the Non-Financial Misconduct (No 2) Instrument, take effect from 1 September 2026, firms affected by those changes should ensure their conduct frameworks and training materials are updated ahead of that date.

‍

From 10 July 2026, the FCA is increasing the financial thresholds that determine whether a firm is classified as an Enhanced SM&CR firm. The key thresholds have been uplifted by around 30% to reflect inflation: firms will now only fall into the Enhanced regime if their average assets under management are £65 billion or more (up from £50 billion), or if their average annual intermediary regulated business revenue is £45 million or more (up from £35 million). For consumer credit firms, the revenue threshold has increased from £100 million to £130 million. As a result, fewer firms will move into the Enhanced regime solely due to growth over time. The FCA has also introduced a new mechanism to automatically update these thresholds every five years in line with inflation, helping ensure the Enhanced regime remains proportionate and predictable.