Phased approach to reform
The proposed changes are being consulted on in two distinct phases:
- Phase 1: The FCA and PRA are seeking views on proposed amendments to their own rules and guidance, which do not require changes to the Financial Services and Markets Act 2000 (FSMA).
- Phase 2: In parallel, HM Treasury is consulting on legislative changes to FSMA itself. Should these be enacted they will grant the FCA and PRA greater latitude to further adapt SMCR requirements in future.
Set out below is a summary of the proposals. A more detailed comparison between current requirements and proposed changes, as well as potential pre-emptive action points for firms, is available here.
Phase 1: FCA and PRA proposed changes
The first phase of reform focuses on changes proposed by the FCA and the PRA to streamline and clarify aspects of the SMCR, as well as to allow more time for certain processes. Their consultations are open until 7 October 2025 and they expect to publish their final rules in mid-2026.
Senior Manager approvals
The FCA is seeking general feedback on the Senior Manager approvals process, particularly regarding unnecessary friction or uncertainty, but is not proposing immediate rule changes. The PRA proposes to update its guidance to expressly state that it will consider prior approvals in other jurisdictions under similar individual accountability schemes and previous SMCR experience when assessing candidates' fitness and propriety.
Criminal records checks for Senior Managers
The validity period for criminal records checks for new Senior Managers would be extended from three to six months. The FCA proposes to remove the requirement for new checks when an existing Senior Manager moves to another Senior Manager role within the same firm or group.
The "12-week rule"
The 12-week rule, which allows temporary cover for absent Senior Managers, would be amended so that firms have 12 weeks to apply for a new Senior Manager to be approved, rather than 12 weeks to obtain a decision on that application as is currently the case.
Individuals covering Senior Manager roles under the 12-week rule must be formally assessed as fit and proper and will be subject to the Senior Manager Conduct Rules.
Senior Management Functions
The FCA and PRA will consider reducing the number of available Senior Management Functions in future reforms.
Additional guidance will be introduced on the application of the SMF7 (Group Entity), SMF18 (Other Overall Responsibility), and SMF22 (Other Local Responsibility) roles, with an emphasis on ensuring that those roles are correctly allocated and, in the case of the SMF18 and SMF22 roles, allocated to individuals of sufficient seniority.
Prescribed Responsibilities
The FCA will continue to allow splitting of Prescribed Responsibilities between Senior Managers, but intends to introduce additional guidance stating that this approach should be taken only where justified and typically in larger or more complex firms.
Solo-regulated firms may start to be permitted to allocate FCA Prescribed Responsibilities to SMF18 (Other Overall Responsibility), and SMF22 (Other Local Responsibility) role holders. The same is not being proposed for PRA Prescribed Responsibilities.
The FCA is proposing to introduce new guidance to assist firms in allocating Prescribed Responsibilities appropriately but has stated that they do not expect firms to re-consider their existing allocations of Prescribed Responsibilities to algin with this new proposed guidance.
Thresholds for Enhanced firms
Financial thresholds for determining whether a solo-regulated firm qualifies for Enhanced status will be increased by approximately 30% to reflect inflation, with the FCA committing to undertake reviews of these financial thresholds every five years.
Statements of Responsibilities and Management Responsibilities Maps
Updated Statements of Responsibilities will need to be re-submitted to the FCA or the PRA within six months of significant changes being made to them, rather than immediately. For solo-regulated firms, only the most up-to-date version of a Statement of Responsibilities would need to be submitted; dual-regulated firms would need to submit all updated versions within the six-month period.
The FCA is proposing to clarify that firms making multiple Senior Manager applications simultaneously can submit a single updated Management Responsibilities Map showing the cumulative impact of those changes if all applications are successful.
The Certification Regime
The FCA proposes to reduce the overlap between certain categories of FCA and PRA Certified Person, thereby simplifying the maintenance of firms' internal records. However, this proposal is unlikely to reduce the overall number of Certified Persons at firms.
Additional guidance will also clarify existing expectations for certification and re-certification processes, including the use of soft copy certificates of fitness and propriety and the ability to embed annual fitness and propriety assessments within existing processes. The FCA will formalise guidance on when Senior Managers must also be classified as Certified Persons.
The Directory
Firms will continue to have seven business days to update the Directory when a Certified Person leaves but will have 20 business days to submit other updates to the Directory.
Regulatory References
The FCA proposes to shorten the response time for regulatory reference requests in its guidance from six to four weeks. The PRA is intending to introduce guidance expressly stating that firms should consider whether to include information about incomplete investigations in regulatory references.
The Code of Conduct
The FCA will clarify its existing requirement that breaches of the Code of Conduct need only be reported through the specific annual reporting requirement for Code of Conduct breaches if disciplinary action is taken, noting that this does not override other reporting obligations such as Principle 11.
Guidance will be introduced to clarify the interaction between breaches of the Code of Conduct, disciplinary action and regulatory references. Existing FCA guidance on Senior Manager Conduct Rule 4 will also be supplemented to expressly specify when Senior Managers must notify the FCA of relevant matters relating to themselves.
Inventory of SMCR Requirements
The PRA intends to publish an inventory of SMCR requirements on its website to help firms stay across the various applicable requirements.
Phase 2: HM Treasury legislative proposals
The second phase of reform involves potential legislative changes to FSMA, which would grant the FCA and PRA greater flexibility in shaping the SMCR.
Senior Management Functions
The definition of Senior Management Function may be amended to allow the regulators to reduce the number of Senior Manager roles.
Pre-approval for Senior Manager roles
HM Treasury is proposing to amend FSMA such that some Senior Managers could be appointed without pre-approval from the FCA and the PRA, provided firms assess their fitness and propriety and notify the regulators of their appointment.
Statements of Responsibilities
Prescriptive requirements in FSMA relating to Statements of Responsibilities may be relaxed, allowing the FCA and PRA to adopt a more flexible approach in terms of what they must contain, as well as how they must be maintained and updated.
The Certification Regime
Provisions in FSMA relating to the Certification Regime look likely to be repealed, thereby enabling the FCA and the PRA to set their own rules regarding the scope of the Certification Regime and requirements relating to assessing fitness and propriety.
The Code of Conduct
HM Treasury has not proposed any specific changes but has stated that it may remove requirements from FSMA if they are found to impose disproportionate burdens on firms.
Next steps
The proposed changes to the SMCR represent an evolution in the UK's approach to individual accountability in financial services. While the core principles remain intact, the proposed reforms aim to address practical challenges and barriers.
Responses to the FCA, PRA and HM Treasury consultations close on October 7, 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
