The Financial Conduct Authority and the Prudential Regulation Authority on 22 October published parallel consultations on the second phase of their review of the Senior Managers and Certification Regime (SM&CR): the FCA’s CP26/37 and the PRA’s CP14/26. The central proposal removes the Certification Regime, under which firms must assess the fitness and propriety of around 139,000 staff below senior manager level on appointment and every year after. The regulators also want fewer roles to need their approval and fewer conduct breaches reported to them. The package moves much of the work of policing individual conduct from the regulators to firms, and the FCA’s own cost benefit analysis says that carries risk.
Seven senior roles would move from approval to notification
Under the FCA proposals, the Head of Internal Audit (SMF5) would become a notified role, along with SMF10 to SMF15: the chairs of the risk, audit, remuneration, nomination and with-profits committees, and the Senior Independent Director. Firms would tell the regulators about these appointments and remain responsible for checking that the person is fit and proper. The FCA would also delete two FCA-only functions, Other Overall Responsibility (SMF18) and Local Responsibility (SMF22), which together cover around 1,400 individuals. SMF18 accounts for 19% of applications at solo-regulated Enhanced firms, and SMF22 for 24% at dual-regulated branches.
Chief executives, chief financial officers and chairs would still need pre-approval. The joint announcement says the regulators would also be able to require pre-approval for an otherwise notified role in high-risk cases. The PRA expects its pre-approvals to fall by 43% and the overall burden of its regime to halve.
Other changes are procedural. The window for temporary cover of a Senior Manager role would extend from 12 to 18 weeks. Firms would stop sending revised Statements of Responsibilities and Management Responsibilities Maps to the regulators, though they must keep both up to date internally. The FCA would remove nine of its Prescribed Responsibilities and raise the thresholds that classify a firm as Enhanced.
The certification checks would go, along with the public register
Removing the Certification Regime ends the annual certificate that firms now issue to staff in functions that could cause significant harm. The PRA counts about 7,700 individuals within its own certification scope, while the 139,000 figure covers all SM&CR firms. The FCA would also retire the Directory, its public register of certified and assessed persons, and drop the requirement to give regulatory references for people who were previously certified.
In place of certification, the FCA proposes to rely on its existing rules on employee competence and suitability in SYSC 3.1.6R and SYSC 5.1.1R, and to extend related guidance to insurers, managing agents and the Society of Lloyd’s. The PRA would add a requirement for Solvency II and CRR firms to consider the personal characteristics of staff who were previously certified.
Conduct Rules training would give way to an obligation to tell staff which Conduct Rules apply and what a breach means. For most staff below senior manager level, firms would report a breach only where disciplinary action ends in a final written warning or dismissal, and would have up to 14 months to report final outcomes. Reporting for Senior Managers stays as it is.
The FCA puts a number on the saving and on the trade-off
The FCA estimates that SM&CR compliance costs firms £434.5 million a year and that its proposals would cut this by £229.0 million, or about 53%. Removing certification accounts for £133.0 million of the annual saving, replacing the training requirement for £56.8 million and the higher breach reporting threshold for £34.4 million. The Senior Managers Regime changes save only about £4.8 million a year, because they touch a much smaller group of people. One-off transition costs are put at £61.7 million and the ten-year net present value at £1.91 billion, which the joint release rounds to about £2 billion.
The reforms involve accepting some additional risk because they reduce regulatory scrutiny, information and preventative controls.
FCA, CP26/37, Annex 2 cost benefit analysis, 22 October 2026
The weakest point is the loss of regulatory references and the Directory at the same time. Both help stop a person dismissed for misconduct at one firm from being hired by another without the new employer knowing. If only final written warnings and dismissals are reported, and previously certified staff no longer carry a regulatory reference, a hiring firm has less to go on. Firms will need their own reference and background checks to fill that gap. The FCA asks respondents which features should be kept if the Certification Regime, references or Directory are not removed.
Singapore built its regime on firm responsibility from the start
The proposals bring the UK closer to Singapore’s model. The MAS Guidelines on Individual Accountability and Conduct, in effect since 10 September 2021, require financial institutions to identify the senior managers responsible for core functions and to assess and monitor their fitness and propriety themselves. They contain no certification regime for staff below senior management. The UK would keep regulator pre-approval for its most senior roles and the statutory Duty of Responsibility, so the two regimes would still differ at the top.
Much of the UK package depends on Parliament passing the Financial Services and Markets Bill 2026 substantially in its current form. The regulators are consulting now so that rules can be made soon after Royal Assent, and the PRA says HM Treasury intends to allow an implementation period when the provisions are commenced.
What to watch
- Both consultations close on 22 January 2027.
- Progress of the Financial Services and Markets Bill 2026 through Parliament.
- FCA final rules in a policy statement in the first half of 2027, with implementation about six months later.
- How the FCA treats cryptoasset firms entering its gateway, under the modification-by-consent approach to certification in PS26/13.
Primary sources
- FCA, CP26/37: Senior Managers and Certification Regime (SM&CR) Review: Phase 2, 22 October 2026 (PDF)
- PRA, CP14/26 – Review of the Senior Managers and Certification Regime (SM&CR) – Phase 2, 22 October 2026
- Bank of England, Regulators unveil plans to simplify Senior Manager and Certification Regime, 22 October 2026
- MAS, Guidelines on Individual Accountability and Conduct, effective 10 September 2021
Related: FCA revives 90-day notice periods for UK property and illiquid asset funds
Photo (cropped): THENvRISE, CC BY-SA 4.0 via Wikimedia Commons
