UK SM&CR Reform: What Changes, What Stays, And What’s Next
What the FCA and PRA’s Phase 2 proposals could mean
for individual accountability.
The UK’s Senior Managers and Certification Regime (SM&CR) could be heading for its most significant changes since its introduction. On October 22, 2026, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published their Phase 2 consultations, CP26/37 and CP14/26, proposing reforms to simplify compliance requirements, reduce administrative burdens, and give firms greater flexibility.
Central to the proposals is removing the Certification Regime, alongside changes to Senior Manager approvals, reporting, and responsibility documentation. While these reforms could significantly change how firms manage individual accountability, core obligations around competence, suitability, and conduct would remain.
The reforms are not yet final. Consultation responses are due January 22, 2027, with implementation potentially beginning in the second half of 2027, subject to final regulatory decisions, legislation, and HM Treasury commencement arrangements. Current SM&CR requirements remain fully in force.
What The Regulators Are Proposing
Phase 2 would simplify several prescribed processes while retaining Senior Manager accountability, the Duty of Responsibility, the Conduct Rules, and wider competence and suitability obligations.
The principal FCA proposals include:
1. Removing the Certification Regime
Eliminate annual Certification and the FCA Directory while retaining competence, suitability, and applicable qualification and training requirements. Regulatory references would remain mandatory for Senior Manager candidates.
2. Simplifying Senior Manager requirements
Move certain roles from approval to notification, reduce Prescribed Responsibilities, and simplify SoR and MRM requirements. Firms would generally maintain records internally rather than routinely submitting updates, with exemptions proposed in certain circumstances.
3. Streamlining Conduct Rules and reporting
Replace mandatory Conduct Rules training with employee notification requirements and narrow breach-reporting thresholds. The FCA proposes a 14-month reporting period for most non-SMF staff subject only to the Individual Conduct Rules, while relevant PRA reporting would remain within seven business days.
4. Increasing regulatory flexibility
Extend the FCA’s temporary cover period from 12 to 18 weeks and raise selected Enhanced regime thresholds by approximately 50%, potentially reducing requirements for some firms.
5. Expanding regulatory scope
Extend Conduct Rules coverage to sole traders and apply SM&CR to additional firms entering the regulatory perimeter, including certain cryptoasset firms. The PRA also proposes additional integrity and honesty requirements for relevant employees at CRR and Solvency II firms.
The FCA also proposes extending Conduct Rules coverage to sole traders, while the regime would apply to additional firms entering the regulatory perimeter, including certain cryptoasset firms.
The PRA’s proposals are broadly aligned, although differences remain in areas such as temporary cover, Senior Manager functions, and Prescribed Responsibilities. The PRA also proposes extending its competent-employee requirements concerning integrity and honesty to relevant employees at CRR and Solvency II firms.
What Industry Advisers Are Saying
Early legal commentary suggests the proposals could significantly simplify SM&CR requirements while leaving firms responsible for effective oversight. Norton Rose Fulbright characterizes the reforms as a rebalancing of regulatory oversight, while Travers Smith highlights the potential shift toward a less prescriptive framework. However, the removal of Certification remains subject to consultation, including whether certain existing requirements should be retained.
Dual-regulated firms will also need to consider differences between the FCA and PRA proposals, particularly around temporary cover, Senior Manager functions, breach reporting, and Prescribed Responsibilities. These distinctions could require firms to maintain different processes across the two regulatory frameworks.
Less Prescription, Continued Accountability
While Phase 2 would remove or reduce certain prescribed requirements, firms would remain responsible for assessing competence and suitability, maintaining accurate responsibility records, communicating Conduct Rules, and managing conduct breaches.
Regulators would also retain supervisory and enforcement powers, including the FCA’s ability to require pre-approval for certain notified Senior Manager roles where governance concerns arise.
Greater flexibility would therefore place continued importance on effective controls, clear accountability, and auditable evidence. Most firms would continue to assess honesty and competence on appointment and whenever there is reason to reconsider suitability. Relevant qualification, Training and Competence and Statement of Professional Standing requirements would also continue for applicable individuals. These continuing obligations would not recreate the formal annual Certification process.
Understanding The Potential Cost Savings
The FCA estimates that the proposals could generate approximately £229 million in annual industry-wide compliance savings, representing around 53% of its modeled baseline. The PRA separately estimates annual savings of approximately £11.5 million.
These figures reflect regulatory cost models, not guaranteed savings for individual firms or reductions in the need for compliance technology and controls. The FCA assumes that firms realize the full economic benefit of any activity removed or streamlined, without reducing the estimate for activities they may choose to retain. It also identified a further £153.2 million in annual costs associated with SM&CR systems, policies, documentation and internal assurance, but excluded these from both its activity-based baseline and quantified savings because it could not reliably estimate how they would change.
Many firms may continue periodic suitability reviews, conduct communications, and supporting documentation to maintain effective oversight. The opportunity is therefore not simply to eliminate processes, but to make compliance more efficient and proportionate.
What Firms Can Do Now
While the proposals remain under consultation, firms can begin evaluating their potential impact.
- Review and respond to the consultations. Consider the proposed changes, FCA/PRA differences, and implementation challenges before the January 22, 2027 deadline.
- Maintain existing requirements. Continue Certification, Directory reporting, Conduct Rules training, and other current obligations until applicable reforms take effect.
- Assess Senior Manager roles. Identify functions potentially moving to notification, being removed, or changing scope, along with any resulting responsibility changes.
- Evaluate competence and suitability controls. Consider how assessments, ongoing development, and supporting evidence would be maintained without annual Certification.
- Review governance and documentation. Assess Senior Manager vetting processes, including Prescribed Responsibility A, and determine whether changes to roles or responsibility allocations would require updated SoRs or MRMs. Not all Enhanced or dual-regulated firms would necessarily require updates at commencement.
- Evaluate operational impacts. Review how proposed changes could affect reporting, employee communications, recordkeeping, technology, and workflows. Consider whether revised Enhanced thresholds could change the firm’s classification.
Beyond The Uk: Ireland As The Next Watchpoint
Ireland is another market to monitor. The Central Bank of Ireland plans to complete a review of its Individual Accountability Framework (IAF) and Senior Executive Accountability Regime (SEAR) in the first half of 2027, alongside work to simplify its Pre-Approval Controlled Function framework.
While these reviews could lead to more proportionate requirements, there is currently no indication that Ireland intends to follow the UK’s proposed removal of Certification. Ireland’s enhanced certification requirements and SEAR only took effect during 2024.
For firms operating across jurisdictions, these developments highlight the importance of adaptable compliance processes that can accommodate different regulatory requirements.
The Bottom Line: Simpler Rules, Continued Responsibility
Phase 2 could significantly reshape UK individual accountability requirements, reducing prescribed processes while retaining core obligations around Senior Manager responsibilities, competence, suitability, and conduct.
For firms, the opportunity is to streamline compliance processes without compromising oversight. Whatever the final shape of the reforms, maintaining clear responsibilities, effective controls, and auditable evidence will remain essential.
How StarCompliance Can Help
As individual accountability requirements evolve, firms need flexible compliance solutions that support ongoing obligations without adding unnecessary complexity. Removing the prescribed annual certificate would change one regulatory process, not eliminate the wider operational need to manage responsibilities, competence, suitability, conduct and supporting evidence.
StarCompliance’s (Star) Individual Accountability and Training and Competency capabilities help firms manage responsibilities, assess and document employee competence and suitability, track conduct-related activities, and maintain accurate, auditable records, and adapt their processes as the final rules are confirmed.
Through its Connected Compliance approach, Star brings data, processes, and oversight together, helping compliance teams improve efficiency, strengthen visibility, and adapt to changing regulatory expectations.
While the proposed reforms may simplify certain requirements, the need for effective individual accountability remains. Star helps firms maintain the controls and evidence needed to demonstrate compliance, today and as regulatory frameworks evolve. To learn more about how Star can help, click [HERE] to book a demo.
Please Note: Current UK SM&CR requirements remain in force, and the final scope and implementation timetable remain subject to consultation outcomes, legislation, and HM Treasury commencement arrangements.
