SM&CR reform: HM Treasury announces Senior Managers and Certification Regime reforms

The government intends to proceed with the removal of the Certification Regime from FSMA 2000, which will enable the regulators to consider a more proportionate, flexible and risk-sensitive approach using their existing rule-making powers. At first blush this will be welcome to firms with large certified populations, who had reported that annual re-certification requirements resulted in thousands of individual assessments pulling HR, compliance, and line managers into repeated exercises without clear added value. However, in recognition of the risk that removing legislation could result in a weakening of firms' internal controls relating to misconduct and operational failures, the regulators have retained their existing rule-making powers and supervisory tools to take action if emerging risks develop.

Once legislation is introduced and subject to parliamentary passage, the regulators plan to consult on further proposed rule changes as part of a Phase 2 of SM&CR reform, considering how best to use the additional flexibilities created by the legislative changes. Because the regulators' detailed requirements will only become clear once their Phase 2 consultations and final rules are published, firms will face a period of transitional uncertainty that makes planning more difficult and may increase implementation costs.

The government intends to legislate so that it is no longer always a requirement for firms to seek regulatory pre-approval when appointing an individual into a senior manager role; regulators will be given a new power to specify in rules where it is suitable for a firm to notify the regulators of their intention to appoint a senior manager following an internal assessment of fitness and propriety. Such notified individuals will still be senior managers under the SM&CR and therefore subject to the same requirements as those who require pre-approval.

There may be circumstances in which regulators do not consider it appropriate for specific firms to appoint certain senior managers without pre-approval, and the government intends to ensure that regulators have appropriate powers to require firms to seek pre-approval for functions otherwise designated as suitable for notification. This is most likely in response to industry feedback about potential unintended consequences, including inconsistent standards across firms, the potential for unsuitable appointments under internal pressure, and a loss of supervisory insight from reduced visibility of senior management function turnover.

The government will repeal the prescriptive provisions relating to Statements of Responsibilities from FSMA 2000, giving regulators greater flexibility to determine through their rules how best to ensure clarity of individual accountability, while reducing unnecessary burdens and improving operational efficiency for firms. Respondents will be interested to see whether regulators’ final rules are limited to updates of a material or permanent nature (as opposed to minor internal adjustments).

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The government will retain the powers in legislation for regulators to make Conduct Rules but repeal the prescriptive legislative requirements on firms to notify regulators of breaches and to conduct mandatory training. Firms had identified that the statutory duty to notify regulators of disciplinary action in relation to Conduct Rule breaches captured immaterial issues where informing the regulator adds little regulatory value, and requested clearer definitions of what constitutes a breach and more proportionate thresholds focused on serious misconduct.

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Although regulators currently have powers to impose conditions or time-limits on senior manager approvals, firms cannot apply for them directly, meaning they cannot be imposed without triggering statutory notice requirements under section 62 FSMA — including warning and decision notices, which carry a stigma effect and are therefore infrequently used. The government will legislate to give regulators the power to decide in their rules and guidance whether to accept applications subject to a time-limit or condition, with statutory notice requirements only triggered if the regulators refuse, vary, or impose other conditions on the application.

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The government has proposed to shorten the regulators' statutory deadlines for determining senior manager applications from three months to two months, noting that the FCA and PRA are already reporting against this two-month timeframe on a voluntary basis. This is intended to further support the UK's international competitiveness in attracting senior financial services talent.

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Respondents highlighted several obstacles when recruiting internationally for senior manager roles, including lengthy approval timelines, difficulties obtaining regulatory references from other jurisdictions, delays in criminal records checks, and UK remuneration deferral rules which were seen as globally uncompetitive. Some obstacles are expected to remain after the reforms, including how the SM&CR applies within global group structures that deter internationally mobile candidates, with respondents suggesting mutual recognition or equivalence arrangements for individuals already approved in comparable jurisdictions.

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The government has separately published a consultation on proposals to change the legislative framework for Appointed Representatives, including bringing them into scope of the SM&CR, that consultation having closed on 9 April 2026. Principal firms with Appointed Representatives networks will need to assess the combined impact of both the SM&CR reform and the Appointed Representatives regime changes on their oversight and compliance arrangements.

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Delivering these reforms will require primary legislation, which the government intends to introduce as soon as parliamentary time allows, with the shared ambition between the government, FCA, and PRA being a 50% reduction in the regulatory burden of the SM&CR. The government will ensure that any commencement of the legislative changes to remove the Certification Regime is aligned with the regulators' development of replacement rules, to smooth the transition and avoid regulatory gaps.

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