Senior Managers and Certification Regime reform – less paperwork, same accountability

Introduction

On 22 October 2026, the FCA and the PRA published parallel consultations on Phase 2 of their reform of the Senior Managers and Certification Regime (SM&CR): FCA CP26/37 and PRA CP14/26. Phase 2 builds on the Phase 1 changes confirmed in April 2026 in the FCA’s PS26/6 and the PRA’s PS12/26. The PRA describes the package as “the most significant reforms to the regime since its introduction”.

The headline is the proposed removal of the Certification Regime. The regulators also propose to cut the number of Senior Management Functions (SMFs) that need pre-approval, replacing approval with notification for many roles. But while the administrative burden is to be reduced, this is not a lighter touch on accountability. As the FCA’s Deputy CEO, Sarah Pritchard, stated “we remain committed to ensuring individual accountability and good standards of behaviour across financial services.”

In this article, we look at what the proposals change, where the two regulators diverge, and what firms should be doing now. Consultations close on 22 January 2027.

 

Background

The timing is driven by the Financial Services and Markets Bill 2026. Many SM&CR requirements, including the statutory basis for certification, are currently hard-wired into FSMA, which has limited how far the regulators can themselves reform the regime. The Bill would remove many of these prescriptive requirements from FSMA and give the FCA and PRA new powers, including the power to designate SMFs that firms only need to notify. It would also leave the regulators to decide in their own rules how requirements such as Statements of Responsibilities, Conduct Rules training and breach reporting should apply. In practice, this means the shape of the regime will increasingly be set, and adjusted, by the regulators. The regulators are consulting now so that they can move quickly once the Bill is passed. The FCA expects to publish final rules in H1 2027, and both regulators expect implementation in H2 2027.

 

What’s changing?

Fewer senior managers will need regulatory approval

The Senior Managers Regime continues to make the most senior individuals in a firm personally accountable for their areas of responsibility. Under the proposals, a range of SMFs would no longer require FCA or PRA approval before appointment. For these roles, the firm would instead assess whether the individual is fit and proper and then notify the regulator of the appointment.

Notification does not mean reduced accountability. The Duty of Responsibility and the Senior Manager Conduct Rules would continue to apply to notified SMFs exactly as they do now. Notably, the Chief Operations Function (SMF24) would remain a pre-approved function. Both regulators refer to operational risks posed by frontier AI systems and cyber incidents, with the FCA noting that SMF24 holders often have responsibility for the activities most exposed to these risks. The regulators plan to review this position two years after implementation.

The Certification Regime to be removed

The Certification Regime currently requires firms to identify employees whose roles could cause significant harm and to assess their fitness and propriety on appointment and annually thereafter. Both regulators propose to remove this. Regulatory references would no longer be required for previously certified individuals, and the FCA would retire the Directory (a public record of certified staff and other key individuals) and end the related reporting and attestation.

However, firms would still need to ensure that their employees are competent and suitable.

Alignment between the regulators

Both regulators say they have coordinated their proposals to reduce complexity for dual-regulated firms. Under both papers, notified SMFs are held to the same standards as approved SMFs. Both papers also link vetting to Prescribed Responsibility A. The FCA says responsibility for vetting SMF candidates stays with the holder of Prescribed Responsibility A, and the PRA proposes to clarify that Prescribed Responsibility A covers the firm’s vetting of SMF candidates. Either regulator can require pre-approval for an otherwise notified role in exceptional cases. Both regulators propose extending temporary cover from 12 to 18 weeks, although they differ on the circumstances in which the rule may be used. Both regulators propose to keep SMF24 pre-approved and remove certification.

Where the FCA and PRA diverge

There are, however, meaningful differences:

For dual-regulated firms, this means tracking two lists of notified roles, meeting two different breach-reporting timelines and applying two different standards in place of certification.

 

What does this mean for firms?

The practical benefits are clear. Appointments to notified roles will be faster because firms will not need to wait for approval, and the FCA expects the biggest benefit to go to smaller firms. The PRA’s certified population of about 7,700 would no longer need annual fitness and propriety assessments. Firms will face fewer regulatory references, forms and submissions, and will have more flexibility when filling temporary vacancies. Routine reporting will also fall, although Statements of Responsibilities and Management Responsibilities Maps must still be kept up to date internally.

But the burden shifts rather than disappears. Firms now own the fitness and propriety decision for notified SMFs. Tellingly, the FCA lists monitoring of supervisory and enforcement action under the SM&CR as one of its measures of success. If a notified appointment later goes wrong, the firm’s own record of its assessment will be the key evidence, and firms should expect that record to be scrutinised.

 

Comment: Deregulation of process

Phase 2 is primarily a deregulation of process, not a dilution of accountability. This approach is in line with the direction we have been tracking. When the FCA published its five-year strategy in March 2025, we noted its ambition to be a ‘smarter regulator’ that supervises in a ‘more predictable, purposeful and proportionate’ way, as well as its focus on reducing administrative burdens on firms and streamlining existing requirements.

We expect the direction of travel to continue, but its pace will depend on how firms respond to this new style. The FCA has said it may extend notification to other roles if it works well, and equally, that it may consult on reintroducing pre-approval should firms make unsuitable appointments.

Firms should use the consultation period to:

• map which of their SMFs, certified staff and FCA Enhanced firm classifications are potentially impacted by these proposed changes;
• plan around the transitional arrangements: applications already in progress at commencement will still be decided, and notifications can be submitted up to one month before commencement;
• design an internal fitness, propriety and integrity framework that will withstand regulatory scrutiny;
• update their controls framework, including breach-reporting and staff notification processes; and
• respond to the consultations by 22 January 2027.

If you would like support with a consultation response or with designing your fitness and propriety framework, please contact: Tony Katz (Partner) and Alessio Marchetti (Senior Associate).

Sources: FCA CP26/37, Senior Managers & Certification Regime Review: Phase 2; PRA CP14/26, Review of the SM&CR – Phase 2; Bank of England news release, 22 October 2026; A proportionate approach: The FCA’s vision for future regulation.

This article is for general information only and does not constitute legal advice.