The FCA Proposes Phase 2 SM&CR Reforms

  • Compliance Alert
  • Conduct Rules, FCA, SM&CR
  • Michael Strug

Key Takeaways

  • The Certification Regime and Directory would end. Firms would no longer complete formal annual certification or Directory reporting, but would remain responsible for competence, suitability, and conduct.
  • Some Senior Management Functions would move from approval to notification. Notified Senior Managers would remain subject to the Duty of Responsibility and Senior Manager Conduct Rules.
  • Responsibility records would remain important. Firms would no longer routinely submit revised Statements of Responsibilities and Management Responsibilities Maps, but would need to maintain current and historic internal records.
  • Conduct Rule requirements would change. The statutory training duty would be replaced by an obligation to notify affected staff of the Conduct Rules that apply to them and the consequences of breach.
  • The impact would vary by firm category. Core, Limited Scope, solo-regulated, Enhanced, and dual-regulated firms should assess how the proposals affect their existing roles, records, processes, and governance arrangements.
  • Firms have an opportunity to shape the final rules. CP26/37 is open for consultation until 22 January 2027, giving firms time to assess the impact and provide feedback on costs, benefits, or unintended consequences.

The FCA’s second-phase consultation on reform of the Senior Managers & Certification Regime (SM&CR) proposes a further set of significant reforms to the regime. CP26/37 would remove the Certification Regime and Directory, reduce the number of functions requiring FCA approval, simplify responsibility records, and change the approach to Conduct Rules training and breach reporting.

The FCA also proposes simplifying senior management function (SMF) applications and notifications, moving Approved Persons forms out of the Handbook, and removing certain supporting-document and duplicative reporting requirements.

The important point is that this is not a withdrawal from individual accountability. It is a shift away from prescribed regulatory processes and towards firms’ own governance, employment, competence, and record-keeping arrangements.

If adopted, the proposals may reduce routine submissions and formal requirements, but firms would need to make sound judgements about how responsibilities are allocated, how fitness and propriety is assessed, and how conduct standards are maintained.

For CCOs, COOs, senior leaders in HR, legal, risk, and operations at FCA-regulated firms, the consultation raises a practical question: which current SM&CR controls are genuinely delivering the intended outcome, and which exist primarily to meet a prescribed process? The answer will shape how firms prepare for a less prescriptive, potentially more judgement-led, regime.

These are consultation proposals only and are not yet in force. Responses are due by 22 January 2027. The FCA expects final rules in the first half of 2027, with implementation proposed around six months later, subject to the consultation outcome and parliamentary process.

The FCA’s SM&CR Proposals Would Reshape the Regime

  • Senior manager approvals would reduce as several SMFs move to a notification model, while the core framework of individual accountability would remain.
  • Firms would retain responsibility records but would no longer need to submit routine updates to Statements of Responsibilities and Management Responsibilities Maps
  • The Certification Regime and Directory would end, but firms would remain responsible for competence, suitability, and conduct standards
  • Conduct Rule requirements would change as notification replaces prescribed training and the reporting threshold for non-SMF staff rises
  • Some firms could move out of the Enhanced regime as proposed financial thresholds increase
  • The consultation closes on 22 January 2027 with final rules expected in the first half of 2027 and implementation proposed for the second half

Notified Senior Managers Would Remain Accountable

For dual-regulated and Enhanced firms, the FCA proposes that SMF5 and SMF10 to 15 become notified rather than approved functions. Firms would assess fitness and propriety, complete the required checks and notify the FCA, rather than wait for regulatory approval. That reduces regulatory lead time, but it also places greater weight on firms’ own appointment, assessment, and challenge processes.

Notified SMFs would remain subject to the Duty of Responsibility and the Senior Manager Conduct Rules and would appear on the Financial Services Register.

The FCA also proposes to remove the FCA-only SMF18 (other overall responsibility) and SMF22 (local responsibility) functions. Associated responsibilities would need to be reallocated to other SMFs. This is potentially significant for Enhanced firms and branches that use those functions extensively: the roles themselves may not change, but responsibility mapping and documentation would.

For solo-regulated firms, the proposed SMF7 definition would require both significant influence over the firm and performance of one of a specified set of group or sub-group functions. Firms would need to reassess existing SMF7 holders against the new two-limb test if the proposal is adopted.

Enhanced Firm Thresholds Would Increase

The FCA proposes further increases to several Enhanced firm thresholds:

  • Consumer credit lenders: £130m revenue to £200m revenue.
  • Asset managers: £65bn AUM to £100bn AUM.
  • Intermediaries: £45m revenue to £75m revenue.
  • Wholesale markets: Significant SYSC to £750m assets.

The mortgage threshold would remain at 10,000 mortgages outstanding and the client-assets threshold would remain CASS Large. CASS is the FCA’s Client Assets Sourcebook, which classifies firms by the amount of client money or safe custody assets they hold. A CASS Large firm holds more than £1 billion of client money or £100 billion of safe custody assets.

The FCA also proposes supplementary guidance allowing it, in limited circumstances, to require a firm below the thresholds to comply with the Enhanced regime by reference to size, complexity or market impact.

Firms Would Have More Time to Arrange Temporary SMF Cover

The temporary-cover rule would move from 12 to 18 weeks for submitting an application or notification. The FCA also proposes replacing the “reasonably unforeseen” condition with a “reasonable use” standard for FCA solo-regulated firms and FCA functions in dual-regulated firms, although it is consulting on whether alignment with the PRA should instead be preserved for dual-regulated firms.

Firms Would Retain SM&CR Responsibility Records

The FCA proposes removing the requirement to submit revised Statements of Responsibilities (SoRs) and Management Responsibilities Maps (MRMs) whenever responsibilities change. Firms would still need to maintain current internal records, retain superseded versions for six years—or 10 years for certain dual-regulated firms—and provide current or historic SoRs and MRMs to the FCA on request.

Where one individual performs all SMF roles in a firm, the FCA proposes removing the SoR requirement and, for firms otherwise in scope, the MRM requirement. If a second individual later performs an SMF, all relevant SMFs would again need SoRs.

Nine Prescribed Responsibilities (PRs) would be removed. The FCA proposes retaining PR A (Senior Managers Regime), PR D (financial crime) and PR Z (CASS) for Core and Enhanced firms, plus PR J-3 (oversight of outsourced internal audit) for Enhanced firms. The FCA states that removing a PR would not remove the underlying requirements; it would remove the PR mechanism for separately recording responsibility for that area. Firms would still need to maintain SoRs where required and accurately record SMF responsibilities.

Certification Would End but Competence Obligations Would Remain

Ending the Certification Regime would remove a significant annual process, but it would not remove firms’ responsibility for competence and suitability.

Firms would no longer have to identify Certification Functions, issue certificates or complete formal annual fitness and propriety certification under that regime. The FCA would instead rely on existing competence and suitability requirements, including the FCA’s Senior Management Arrangements, Systems and Controls (SYSC) sourcebook, particularly SYSC 3.1.6R and SYSC 5.1.1R, together with applicable Training and Competence requirements, Statements of Professional Standing, the Conduct Rules and the Consumer Duty where relevant.

This is not a proposal to remove firms’ responsibility for competence and suitability. The FCA states that firms would remain responsible for ensuring individuals in relevant roles are competent, suitable and meet appropriate standards of conduct.

The FCA also proposes removing the requirement to obtain regulatory references for previously certified persons. Regulatory references would remain required for candidates for approved or notified SMF roles.

Separately, the Directory would be retired and associated reporting and annual attestation would end. Information on firms and SMF holders would remain available through the FCA Register.

Conduct Rule Notification Would Replace Prescribed Training

The Conduct Rules themselves would not change. The FCA proposes replacing the current statutory training duty with an obligation to ensure that affected staff are notified of the Conduct Rules that apply to them and the consequences of breach.

Firms could continue to provide training, including role-specific training, where appropriate. However, the proposed requirement would be to ensure that affected staff are notified of the Conduct Rules that apply to them and the consequences of breaching those rules

For non-SMF staff who are subject only to the Individual Conduct Rules, only disciplinary action resulting in a final written warning or dismissal would be reportable. Firms would have up to 14 months from imposing disciplinary action to report the final outcome after any appeal. Different reporting requirements would continue to apply to SMFs and to non-SMF staff who are also subject to Senior Manager Conduct Rules. Existing notification obligations under Principle 11, SUP 15 and SUP 10C would remain unaffected.

Firms Should Assess the Impact of SM&CR Reform Now

Continue to apply the current regime

The Phase 2 proposals are not yet rules and should not be treated as permission to stop certification, Directory reporting, Conduct Rules training, or existing notification processes.

Assess the impact by firm category
  • Core and Limited Scope firms should consider the proposals on temporary cover, SoRs, PRs, certification, the Directory, and Conduct Rules.
  • Solo-regulated firms should also assess the revised SMF7 definition. Enhanced firms should consider the implications of notified SMFs, the removal of SMF18 and SMF22, MRMs, and the proposed threshold changes.
  • Dual-regulated firms should additionally consider the interaction with PRA requirements, including the temporary-cover proposal and record-retention expectations.
Map affected roles and processes

Identify current SMF18, SMF22, and SMF7 holders, Certification Functions, Directory Persons, regulatory-reference workflows, and Conduct Rule reporting populations.

Preserve controls and records

Even if annual certification and prescribed training fall away, firms will still need to demonstrate competence, suitability, accountability, and Conduct Rule awareness.

Consider whether to respond to the consultation

The FCA is seeking data on costs, benefits, and unintended consequences, including where useful features of certification, regulatory references, or the Directory should be retained.

Plan for coordinated implementation, not immediate change

The FCA expects final rules in the first half of 2027 and proposes implementation around six months later, subject to the consultation outcome and parliamentary process.

SM&CR Reform Would Shift More Judgement to Firms

CP26/37 is a simplification package, but it would shift more judgement to firms. Reduced pre-approval, fewer prescribed responsibilities and the removal of certification would lower process burden. These changes would also make the quality of firms’ own governance, role design, recruitment checks, competence frameworks, performance management, and record keeping more important.

A considered approach should seek not to preserve every existing form or process. It should identify the outcomes each control supports and determine how that outcome would be evidenced under a less prescriptive regime.

An independent perspective can help firms distinguish between controls that support sound accountability and those that exist mainly because of legacy process, while testing whether revised arrangements remain clear, proportionate, and workable.

ACA Helps Firms Prepare for SM&CR Reform

ACA helps firms assess how the proposed reforms could affect their current SM&CR arrangements and prepare for implementation once final rules are published.

Our specialists can support firms with:

  • Assessing the impact of the proposals across governance, senior management responsibilities, certification, Conduct Rules, and reporting arrangements
  • Reviewing accountability frameworks including Senior Management Functions, Statements of Responsibilities, Management Responsibilities Maps, Prescribed Responsibilities, and temporary-cover arrangements
  • Testing fitness and propriety, competence, and conduct arrangements to identify which controls should be retained or adapted if the Certification Regime ends
  • Strengthening records and governance processes so firms can maintain clear responsibility allocation, decision-making records, and appropriate oversight under a less prescriptive regime
  • Supporting consultation responses and implementation planning using operational insight on costs, benefits, and unintended consequences
  • Providing scheduled and tailored SM&CR training on Senior Manager requirements, individual accountability, responsibility mapping, and Conduct Rules for senior managers and relevant employees

Whether you are considering a consultation response or beginning to plan for implementation, our SM&CR specialist can help you identify the next practical steps.

Speak With a Specialist

Related Resources

Frequently Asked Questions About FCA SM&CR Reform

No. CP26/37 is a consultation, not a change to the current rules. Firms should continue to meet existing requirements for certification, Directory reporting, Conduct Rules training, and notifications unless and until final rules take effect. Responses to the consultation are due by 22 January 2027.

The proposals would simplify several parts of the regime. They include moving certain Senior Management Functions from prior FCA approval to notification, removing the Certification Regime and Directory, reducing routine submission requirements for Statements of Responsibilities and Management Responsibilities Maps, changing Conduct Rules training requirements, and revising some Enhanced firm thresholds.

Yes. The proposals would reduce some prescribed processes, but they would not remove the Duty of Responsibility or the Senior Manager Conduct Rules. Firms would still need to allocate responsibilities clearly and ensure that Senior Managers can demonstrate they took reasonable steps to discharge their responsibilities.

Yes. The proposed removal of the Certification Regime would end the formal annual certification process, but it would not remove firms’ responsibility to ensure that relevant individuals are competent, suitable, and meet appropriate standards of conduct. Other applicable requirements, including those under SYSC, Training and Competence, the Conduct Rules and the Consumer Duty, would continue to apply where relevant.

Firms would no longer need to submit revised Statements of Responsibilities or Management Responsibilities Maps to the FCA whenever responsibilities change. They would, however, need to maintain current internal records, retain superseded versions, and provide them to the FCA on request. The FCA proposes a six-year retention period for most firms and ten years for certain dual-regulated firms.

All firms within scope of SM&CR should assess the proposals, but the implications would vary. Core and Limited Scope firms should consider certification, the Directory, Conduct Rules, temporary cover, and responsibility requirements. Solo-regulated firms should also assess the proposed SMF7 definition. Enhanced and dual-regulated firms should additionally consider notified SMFs, SMF18 and SMF22, Management Responsibilities Maps, threshold changes, and interactions with PRA requirements.

Firms should continue to apply the current regime, identify the roles, records, and processes affected by the proposals, and assess which existing controls support continuing accountability, competence, and conduct outcomes. Firms may also wish to consider whether the consultation creates an opportunity to provide operational feedback on costs, benefits, or unintended consequences.

ACA can help firms assess the impact of the proposals, review responsibility and governance arrangements, test fitness and propriety and Conduct Rules frameworks, support consultation responses and implementation planning, and provide scheduled or tailored training on Senior Manager requirements. Speak with a Specialist to discuss the practical implications for your firm.

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