Key takeaways: July 2025 SM&CR reform proposals

On 15 July 2025, HM Treasury, the FCA and the PRA published consultation papers marking the first phase of a significant reform of the Senior Managers and Certification Regime (SM&CR).

After extensive discussion with the industry, HMT and the regulators have listened and are proposing changes to address to challenges and burdens faced by firms. HMT said that it aims to reduce the regulatory burdens of the SM&CR by 50%.

The ‘Phase 1’ consultation period runs until 7 October 2025, with final rules expected in mid-2026. These reforms represent a pivotal shift in the UK’s approach to individual accountability in financial services. Firms should review the consultation papers closely and consider submitting feedback before the October deadline.

The PRA/FCA papers set out reforms that can be delivered without legislative change.  The regulators will consult further as part of phase 2 reform proposals to take advantage of any additional flexibility arising from HMT’s proposals.

 

The key challenges of the SMCR and proposals to fix them

1. Impracticality of the 12-week rule

• The FCA and PRA propose to make changes to the 12-week rule – a firm will only need to submit a complete SMF application with 12-weeks rather than obtain full approval within 12 weeks, which posed significant practical challenges.

• Where recruiting a permanent candidate would take longer than 12 weeks, firms should apply for an interim SMF within the 12 weeks. However, the FCA plans to explore introducing more flexibility in appointing interim SMFs before seeking formal approval in Phase 2.

• The regulators also propose new guidance on when the 12-week rule can be used (beyond the current “temporary” and “reasonably unforeseen”).

2. Significant administrative burdens and high-regulatory costs of complying with the Certification Regime

• HM Treasury is proposing to remove the Certification Regime from legislation, allowing the regulators to develop a more flexible and proportionate regime.

3. Backlog and delays in senior manager assessments

• The regulators have made significant improvements, but the potential issue of delay and friction in senior appointments remains relevant.
  
  
• The reduction of the number of senior manager roles and those requiring pre-approval would allow regulators to focus pre-approval on key senior roles, while enabling firms to self-certify and notify regulators for others.

• This could also significantly reduce the number of roles requiring formal approval, increasing flexibility for the regulators determine which roles require approval, and efficiency for firms when appointing senior managers.

• FCA noted that removal of SMF roles were not widely supported and might create unnecessary complexity and burden for firms. However, the FCA does plan to explore whether SMF roles could be reduced or applications for approvals reduced in Phase 2.

• However, it should be noted that the PRA is consulting to broaden the definition of SMF7 (group entity function) for dual-regulated firms to include owners and controllers in certain circumstances

4. Administrative burden of the SMR

• HMT is proposing to remove prescriptive legislative requirements relating to provision, maintenance and updating of Statement of Responsibilities, with the aim of allowing regulators to adopt a more proportionate approach.

• HMT is also seeking feedback on whether any current legislative requirements for the Conduct Rules (eg training, breach reporting) create a disproportionate burden.

• The FCA is proposing to apply a 30% increase to the thresholds for the enhanced-firm category. Some firms currently categorised as enhanced may no longer be subject to the more onerous requirements.

• The FCA and PRA propose enhanced guidance on the application of conduct rules, allocation of prescribed responsibilities, and regulatory references.

• A new policy index and clearer inventory of senior manager responsibilities are also planned to help firms navigate the regime more easily.