FAQs on proposed reforms to the UK senior managers and certification regime

The Senior Managers & Certification Regime ("SM&CR") has been a cornerstone of the UK’s individual accountability regulatory framework for banks, insurers and other regulated firms since its introduction in the wake of the global financial crisis. In July 2025, both the Financial Conduct Authority ("FCA") and His Majesty’s Treasury ("HMT") published consultation papers (FCA consultation paper CP25/21, July 2025) (HMT consultation paper 15 July 25) proposing significant reforms to the SM&CR.

These reforms will impact those employees performing senior manager and certification functions in UK regulated firms and the HR, legal and compliance colleagues who support them. They will also ease the administrative burden post-closing following M&A transactions involving regulated firms where new senior employees may fall within the SM&CR regime.

This article summarises the proposed reforms, their anticipated implementation timeline and the further changes under consideration for the next phase of reform.

What reforms are proposed by HMT?

A. Removal of the certification regime

The HMT consultation paper proposes a fundamental legislative change: the complete removal of the certification regime from the Financial Services and Markets Act 2000 (as amended) ("FSMA"). The Certification Regime is currently established in sections 63E and 63F of FSMA. These sections require firms to ensure that no employee performs a Certification Function unless certified as “fit and proper” by the firm, with annual recertification and record-keeping obligations. This reform is a direct response to widespread industry feedback that the Certification Regime, as currently enshrined in primary legislation, is a significant source of administrative burden and regulatory cost, particularly due to its annual recertification requirement and broad scope. As of June 2025, HMT confirms there are currently c.262,000 functions held by c.139,000 individuals with certificates.

The key details are as follow:

• Proposed Change: HMT proposes to repeal sections 63E and 63F, removing the statutory duty for firms to certify employees in specified functions and the associated regulatory requirements.
• Regulatory Powers: The intention is to allow the FCA and PRA to use their existing rule-making powers (specifically, sections 137A and 137G of FSMA) to design a replacement regime. This would give regulators flexibility to tailor requirements to the risks posed by different roles and firms, and to adapt the regime over time as the sector evolves.
• Implications: The removal would eliminate: (i) the statutory duty for firms to certify employees for certification functions and (ii) the requirement for annual recertification and issuance of certificates and (iii) the obligation to keep records of certified employees and to notify individuals of reasons for not issuing a certificate.
• Rationale: HMT’s view is that a rule-based regime, rather than one set in primary legislation, will allow for a more proportionate, lower-cost, and competitive approach, while still ensuring that individuals in significant roles are fit and proper.

B. Reform of the SM&CR

• Current Framework: The SM&CR is set out in FSMA, with the FCA and PRA specifying which roles are senior management functions ("SMFs") and requiring pre-approval for individuals to perform these roles.
• Proposed Changes: The following is proposed:
  • Reducing the Number of Senior Manager Roles: HMT proposes to amend the definition of “Senior Management Function” in FSMA (sections 59ZA and 59) to give regulators greater flexibility in specifying which roles require pre-approval. This would allow for a more focused regime, potentially reducing the number of roles in scope, especially for smaller or less complex firms.
  • Removing Pre-Approval for Some Roles: HMT proposes to modify the statutory requirement that all senior managers must be pre-approved by the regulator. Instead, regulators could, via rules, specify certain SMFs for which pre-approval is not required. For these roles, firms would be responsible for assessing fitness and propriety and would notify the regulator of appointments, rather than seeking prior approval.
  • Mechanism: The changes would enable a dual-track approach: (i) some SMFs would still require pre-approval and (ii) others would move to a notification regime, with the firm certifying fitness and propriety and informing the regulator.

• Regulatory Oversight: All individuals in SMFs would remain subject to the regime’s accountability and conduct requirements, and regulators would retain their powers to supervise and, if necessary, take action against individuals.
• Expected Benefits: These changes are expected to reduce delays and administrative costs associated with senior manager appointments, improve business agility, and enhance the UK’s international competitiveness.

C. Removal of detailed requirements for statements of responsibility (SoRs)

• Current Requirements: FSMA requires that each SMF has a SoR, which must be kept up to date and provided to the regulator whenever there is a “significant” change in responsibilities. The legislation also prescribes the process for updating and submitting SoRs.
• Proposed Change: HMT proposes to remove these detailed legislative requirements, giving regulators the discretion to set out, via rules, a more proportionate approach to the provision, maintenance, and updating of SoRs.
• Rationale: The aim is to maintain the principle of clear and documented individual accountability, but to allow for more flexibility in how and when SoRs are updated and submitted. This would enable regulators to reduce the frequency and administrative burden of updates, particularly for minor or non-material changes.
• Regulatory Flexibility: Regulators could, for example, move to periodic updates (as the FCA is already proposing in its own consultation), or set materiality thresholds for when updates are required, rather than requiring submission for every change.

What reforms are proposed by the FCA?

The FCA’s consultation paper sets out a comprehensive package of reforms aimed at streamlining the SM&CR, reducing regulatory burden, and enhancing the regime’s efficiency and effectiveness, while maintaining its core principles and benefits. The key proposals are as follows:

• Reform of the 12-week rule: The FCA proposes to amend the 12-week rule, which allows firms to appoint an individual to cover for a senior manager without regulatory approval in cases of temporary or unforeseen absence. Under the new proposal, firms will have 12 weeks to submit an application for the Senior Management Function (SMF), rather than 12 weeks to obtain a decision. Once the application is submitted, the individual can continue in the role until the application is determined. This change is intended to provide greater certainty and flexibility for firms managing senior management transitions.
• Streamlining the SMF Approval Process by removing duplicative processes: The FCA has already improved processing times for SMF applications, with over 99% now determined within the statutory three-month period and a median determination time of 41 days. The validity period for criminal record checks (CRCs) will be extended from three to six months. The requirement to obtain a new CRC for internal moves within the same firm or group will be removed, reducing unnecessary duplication and costs.
• Certification regime: The FCA proposes to remove duplication in certification roles, such as where an individual is both a material risk taker and a significant management function holder or a manager of a certification employee who is already certified for another function. This is expected to reduce the number of certification roles by approximately 15%.
• Regulatory References: The FCA proposes to reduce the recommended timeframe for providing regulatory references from 6 weeks to 4 weeks, to speed up recruitment processes.
• SMF7 and SMF18: The FCA has provided further guidance on the scope of these SMF roles. In particular, the person performing the SMF18 should be in the top layer of executive management of equal status to executive directors.
• Raising Enhanced Firm Thresholds: The financial thresholds for a firm to be classified as “Enhanced” under the SM&CR will be increased by 30% to reflect inflation, reducing the number of firms subject to the most onerous requirements. Additional guidance will be provided on the application of SMF roles.

What additional reforms are under consideration in phase 2?

The FCA outlines additional reforms it is considering for the next phase of SM&CR reform, contingent on legislative changes by HMT. These potential changes are aimed at further reducing regulatory burden.

• Reducing the Number of SMF Approvals: The FCA is considering removing certain SMF roles from the regime or reducing the number of roles requiring pre-approval, thereby streamlining the approval process.
• Greater Flexibility for Interim SMF Appointments: The FCA may expand the use of the 12-week rule, allowing firms more flexibility to appoint interim SMFs before seeking formal approval.
• Further Streamlining the SMF Assessment Process: This could include reducing the documentation required for SMF applications and improving relevant systems to make the process more efficient.
• Reducing the Frequency of SoR Submissions and Simplifying PRs and MRMs: The FCA is considering reducing how often firms must submit updated SoRs, reviewing the list of Prescribed Responsibilities, and simplifying Management Responsibilities Maps.
• Designing a Streamlined Replacement for the Certification Regime: If the Certification Regime is removed from legislation, the FCA plans to design a new, less burdensome regime to ensure fitness and propriety of individuals not performing SMFs. The FCA may remove the Directory of certified and assessed persons and explore alternative ways for consumers to access necessary information.
• Streamlining Conduct Rule Breach Reporting: The FCA is considering ways to simplify the process for reporting breaches of the Conduct Rules, reducing the compliance burden on firms. It also proposes to produce new guidance to assist firms in understanding when to report Conduct Rule breaches, when to refer to them in regulatory references and when they might impact an assessment of fitness and propriety.

What are next steps?

The consultation periods for both the HMT and FCA consultation papers expire on 7 October 2025, after which the government will consider feedback and, subject to Parliamentary time, progress the necessary legislative amendments to FSMA.