Dear Clients and Friends,
2025 is shaping up to be a year of the FCA balancing the need for robust regulation with the government’s commitment to a competitive financial services sector and its UK growth ambitions. As much as the rhetoric tries to convince otherwise, those demands are not natural bedfellows.
But does a refresh of the Senior Managers and Certification Regime (SM&CR) present an opportunity for the FCA to have its cake and the government to eat it? Can the regime be refined in a sensible, pragmatic way such that the undoubted positives are retained but some of the bureaucracy and paper shuffling can be lost?
Earlier this month, the FCA kicked off Phase 1 of its review of SM&CR (CP 25-21). Spoiler alert: this first wave of changes is mostly about tidying up – nothing groundbreaking yet. The potentially more significant reforms are being saved for Phase 2, which hinges on the Treasury making legislative changes.
Whilst the phase 2 changes are not covered in detail by the FCA, potentially meaningful changes that may follow include:
- removing some Senior Management Function (SMF) roles or reducing pre-approvals;
- Further expanding the 12-week rule;
- Streamlining the SMF assessment process;
- Reducing the frequency of submission of Statements of Responsibilities (SoRs), reviewing the list of Prescribed Responsibilities and simplifying Management Responsibilities Maps;
- Removing the certification regime and replacing it with a new, simpler regime;
- Removing the Directory; and
- Streamlining Conduct Rule breach reporting.
Phase 1: Key Proposed Changes:
For now though, we must focus on the Phase 1 proposals. We consider certain of the more material proposals below because they provide helpful clarification or confirmation of existing day to day matters and/or they offer the prospect of a streamlined, less bureaucratic regime.
12-week rule – more room to breathe: Previously, firms had 12 weeks to both submit and get approval for an unforeseen SMF replacement. Now, the application will just need be submitted within 12 weeks. Prescribed responsibilities still need to be allocated in the interim, but updated SoRs would not need to be filed 12 weeks have passed. A welcome, pragmatic proposal though still failing to reflect the lengthy recruitment horizons faced at the senior end of the market.
Form As – less admin: Applicants will formally be able to upload one combined document (skills gap analysis, competency assessment, Learning and Development (L&D) plan) instead of three. Criminal records checks are valid for six months (up from three).
Prescribed responsibilities – more flexibility: Although not their preference, the FCA now explicitly permits the splitting of prescribed responsibilities. Guidance on this will follow in the finalised Phase 1 rules.
Changes to the Certification Regime: Certification certificates can be provided digitally, and recertification can piggyback off performance reviews. The FCA is also removing separate certification requirements for overlapping roles – a welcome change – for example:
- A SMF holder where the individual is also certified as an FCA Material Risk Taker; or
- The manager of a certification employee if already certified for another certification function.
Note, SMFs need to be certified if the role is distinct from their SMF; this is often misunderstood, so this is a helpful clarification and now is a good moment to reflect on your firm’s current approach.
Enhanced SM&CR firm threshold – adjusted for inflation: The FCA is proposing the following increases to thresholds, and these will be reviewed every 5 years thereafter.
- AUM: £50bn → £65bn
- Intermediary revenue: £35m → £45m
- Consumer credit revenue: £100m → £130m
These changes should stop firms from being caught in the Enhanced regime just because of inflation.
Directory & regulatory references – extra time, clearer expectations: Firms now have 20 business days to update the Directory (except for leavers, which still need updating in 7). Regulatory Reference guidance is being tidied up too – references should be provided within 4 weeks, and rules will make it clear these apply to firms still seeking authorisation.
Conduct rule breaches: The FCA is offering new guidance (not rules), including:
- Only reporting conduct rule breaches where disciplinary action was taken;
- Highlighting that notification requirements for conduct rule breaches are separate to other reporting requirements; and
- Clearer requirements on what should go in regulatory references, including if no action was taken despite an issue coming to light.
Phase 2 Possible Changes:
Phase 2 is where things might get more meaningful as the FCA. Some changes muted include the removal of some SMF roles and streamlining the SMF approval process. They are also float the idea of removing certain prescribed responsibilities.
The biggest proposed change in phase 2 is the possible removal of the certification regime altogether, along with the suggested removal or rehaul of the Directory.
Final Thoughts
There’s not much here to radically change your compliance processes right now – think of this as an amuse-bouche ahead of the main course to come in 2026/2027. It is however promising to see the FCA acknowledge that parts of SM&CR have become overly complex and burdensome and that guidance need to reflect sensible industry practice. We will be watching for Phase 2, where we anticipate the real change and relief might come.
As always, let us know if you’d like to discuss how these updates might impact your firm or if a review of your current practises would be useful.
