HM Treasury (HMT), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have recently published a coordinated set of papers setting out Phase 1 reforms to the Senior Managers and Certification Regime (SM&CR). These include HMT’s response to its July 2025 consultation, the PRA’s Policy Statement PS12/26 and the FCA’s Policy Statement PS26/6. Although the publications are closely coordinated and, in some areas, deliberately aligned, their practical impact differs depending on whether a firm is an insurer or an insurance intermediary.

The reason for dividing the reform package into separate phases is that the Phase 1 reforms are intended to be non‑legislative and therefore capable of being implemented with minimum delay. As such Phase 1 reform is deliberately not intended to resolve structural concerns such as around certification, pre‑approval or statutory rigidity. Rather, Phase 1 is intended to deliver immediate operational relief, reset supervisory tone, and create space for more ambitious change in Phase 2, which is expected to require primary legislation.

This briefing considers the Phase 1 reforms and their practical implications for insurers and insurance intermediaries, ahead of the more substantive changes anticipated under Phase 2.

1. Background

The SM&CR has been one of the most important governance reforms in UK financial services over the past decade. Originally applied to banks and extended to insurers in 2016, the regime sought to strengthen individual accountability by addressing perceived failures of collective responsibility exposed in the banking sector by the global financial crisis. While the underlying objectives remain widely supported, the regime’s practical operation, particularly within the insurance sector, has increasingly been criticised as overly complicated, resource-intensive and not aligned with how insurance risks are managed.

Reform of the SM&CR is therefore an obvious area of improvement which aligns with the FCA and PRA's new secondary statutory objective to promote international competitiveness and growth and is consistent with the government’s broader “Leeds reforms” agenda, which aims to reduce unnecessary regulatory and administrative burdens while upholding high standards of conduct.

2. HMT Response – foundation for reform

HMT’s response to the July 2025 consultation provides the strategic foundation for both the immediate Phase 1 changes and the more ambitious Phase 2 reform agenda.

 In particular, the response establishes the following core themes:

• Removal of the Certification Regime: The most significant proposed reform for the insurance sector is the planned removal of the Certification Regime from the Financial Services and Markets Act, including the statutory obligation for annual recertification. For insurers with large populations of certified staff—often extending across underwriting support, claims, pricing and distribution—this has the potential, in due course, to materially reduce ongoing HR, compliance and line management burden. However, this reform is explicitly positioned as a Phase 2 measure rather than a Phase 1 change.
  
  In place of statutory certification, the FCA and PRA are expected to set out replacement requirements in their rulebooks, focused on higher‑risk roles and designed to avoid duplication with existing fitness, competence and remuneration frameworks.
• Moving away from statutory prescription: A central theme of the response is a deliberate move away from detailed statutory prescription towards a more flexible, regulator‑led framework. The Government has accepted that embedding granular SM&CR requirements in primary legislation has constrained the ability of the FCA and PRA to adapt the regime to different sectors and business models. Therefore, for insurers, this signals a shift away from rigid, one‑size‑fits‑all obligations towards a more risk‑based and proportionate approach, delivered primarily through regulator rulebooks and supervisory practice rather than statute.
• Greater flexibility under the Senior Managers Regime: HMT also confirms that regulators should be given greater flexibility to permit certain Senior Management Functions to move from mandatory pre‑approval to a notification‑based model, following an internal fitness and propriety assessment by the firm. For insurers, in particular, this could significantly improve succession planning, internal mobility and the management of interim appointments. Importantly, however, this increased flexibility is intended to preserve regulatory oversight, with the FCA and PRA retaining powers to intervene where concerns arise.

3. PRA Phase 1 Reforms (insurers only)

The PRA’s Policy Statement PS12/26, effective from 24 April 2026, implements a package of targeted but modest non-legislative reforms The PRA makes clear that these changes are not intended to require structural changes to governance arrangements or SMF populations at this stage. The most relevant reforms for PRA‑authorised insurers are as follows:

• The 12‑week rule: Firms now have up to 12 weeks from a vacancy arising to submit a complete Senior Management Function application, rather than needing the application to be approved within that period. This provides greater flexibility where unexpected departures or short‑notice interim arrangements arise.
  
  Importantly, however, individuals performing an SMF under the 12‑week rule will remain subject to the Senior Manager Conduct Rules, and any breaches continue to be reportable to the PRA. The PRA has therefore eased process friction while preserving personal accountability.
• SMF7 (Group Entity Senior Manager): PS12/26 revises supervisory guidance on SMF7 to promote greater consistency of application. The PRA confirms that Phase 1 is not intended to materially widen the scope of SMF7, although controllers (and where relevant their representatives) may fall within scope where they exercise significant influence over day‑to‑day management.
  
  For insurance groups with complex ownership and governance structures, this clarification is important. It reinforces the PRA’s emphasis on substance over form while avoiding a wholesale expansion of regulated roles at this stage.
• Statements of Responsibilities and Management Responsibilities Maps: A further operational change is the introduction of a six‑month submission window following significant changes, during which firms may submit only the latest versions of Statements of Responsibilities (SoRs) and Management Responsibilities Maps (MRMs), rather than all interim iterations. Firms therefore retain the option to submit updates on a live basis if they wish. For insurers with complex group structures and frequent interim arrangements, this should reduce documentation churn while preserving regulatory visibility over material governance changes.
• Regulatory references and criminal record checks (CRCs): PS12/26 updates guidance on regulatory references, clarifying expectations where investigations are incomplete at the point an individual leaves a firm and emphasising the need for reasonable grounds for disclosure. In parallel, the PRA extends the validity period for criminal record checks from three to six months and removes the requirement to obtain new CRCs where an existing SMF holder moves to another SMF role within the same group, subject to conditions and a maximum one‑month gap.

Several of these changes overlap with FCA operational reforms described below; however, PS12/26 applies only to insurers, reflecting the PRA’s prudential focus.

4. FCA Reforms (insurers and insurance intermediaries)

In parallel with the PRA’s Phase 1 package, the FCA has confirmed a set of non‑legislative, operational reforms to the SMCR. But unlike the PRA’s reforms, the FCA’s have a focus on consumer outcomes. The following elements are most relevant to insurers and insurance intermediaries:

• Senior Management Functions and role scope: While no immediate removal of SMFs is implemented in Phase 1, the FCA confirms a shift in supervisory approach away from narrow, technical interpretations of SMF boundaries and towards clearer ownership of regulatory and consumer outcomes.
  
  For insurers, the practical impact is modest, given the continued alignment with the PRA’s SMF framework. However, for insurance intermediaries, particularly large brokers, MGAs and firms with appointed representative (AR) networks, this is important recalibration. The FCA is seeking to reduce fragmentation of accountability for senior roles and to discourage firms from creating multiple SMFs to manage perceived regulatory risk. In supervisory terms, this reinforces a substance‑over‑form approach: the FCA’s focus will be on whether responsibility for key risks sits clearly with an identifiable senior individual, rather than on the architecture of SMF allocations.
• SoRs: A central theme of the FCA’s reforms is the recognition that SoRs have, in practice, become over‑legalised and overly granular, often providing limited supervisory value. Consistent with the government’s consultation response, the FCA confirms that it will take a less prescriptive approach to SoRs, placing less emphasis on drafting precision and technical challenges.
  
  While no formal rule change is introduced at this stage, the FCA also makes clear that SoRs should be concise, intelligible and outcome‑focused, rather than exhaustive catalogues of responsibilities. This represents a material shift in tone, particularly for insurance intermediaries, where frequent business model change has driven repeated SoR updates and supervisory engagement.
  
  For insurers, SoRs will remain an important accountability tool, particularly where responsibilities intersect with Consumer Duty obligations. However, the FCA’s approach suggests a greater willingness to tolerate high‑level articulation of responsibility, if accountability for material risks (such as pricing, product governance, distribution and complaints) is clear.
• Timing for SoR and Management Responsibilities Map notifications: In addition to this change in supervisory tone, the FCA has formally extended the timeframe for notifying changes to Statements of Responsibilities and, where applicable, Management Responsibilities Maps. FCA‑regulated firms may now submit changes in batches once every six months, and where multiple changes occur during that period, only the latest version needs to be submitted.
  
  This mirrors a similar PRA reform for insurers; however, for insurance intermediaries, the change is particularly significant. It provides operational relief for firms subject to frequent governance changes, while preserving the requirement to keep internal records accurate and up to date at all times and without diluting accountability expectations.
• Prescribed Responsibilities (PRs): The FCA has issued additional guidance on the allocation and splitting of PRs, reinforcing that PRs should normally sit with the most senior individual responsible for the relevant area and that splitting or sharing responsibilities should be exceptional, justified and actively managed. The FCA has emphasised that fragmentation of PRs will remain a supervisory concern where it obscures accountability.
  
  In addition, from July 2026, the FCA will permit SMF18 (Other Overall Responsibility) holders at solo‑regulated firms to hold any PRs. This provides increased flexibility for insurance intermediaries with flatter or non‑traditional executive management structures. However, the FCA has been clear that firms using this flexibility must continue to demonstrate clarity of accountability in practice, and that these arrangements may be revisited in Phase 2.
• Certification regime: The FCA acknowledges concern that the certification regime has become operationally complex and unevenly applied, particularly in sectors with large, diverse workforces such as insurance distribution. Phase 1 reforms therefore focus on clarifying supervisory expectations and streamlining processes, rather than amending the underlying rules.
  
  The FCA emphasises that certification should be targeted at roles that genuinely pose a risk of significant harm to consumers or market integrity and should not be used as a default mechanism for managing broader conduct risk. In practice, this signals a reduced appetite for expansive certification populations and a move away from purely defensive certification decisions.
  
  For insurance intermediaries, this supports a narrowing and refining of certified roles, particularly in sales, advisory and managerial functions where certification has often overlapped with existing competence and training regimes. For insurers, the immediate impact is more limited; however, the FCA’s position reinforces the direction of travel anticipated under Phase 2.
• Removal of overlapping multiple certifications: From July 2026, the FCA will remove the requirement for individuals to hold multiple overlapping certifications in respect of the same firm, reducing duplication across certification functions. The FCA estimates that this will reduce the number of certification roles by around 15%. Importantly, the FCA will itself update the Directory to reflect these changes, thereby limiting implementation burden for firms.
  
  While this change is largely operational, it is particularly relevant for large insurance intermediaries with complex role profiles and multiple certification touchpoints.
• Directory reporting timelines: The FCA has extended the deadline for updating most Directory information from seven to 20 business days, while retaining the shorter deadline for reporting departures. This provides operational relief for firms with large populations of certified or assessed persons, including large intermediaries, without reducing expectations as to the accuracy or completeness of Directory data.
• Regulatory references: In parallel with the PRA reforms applicable to insurers, the FCA has amended its guidance to state that firms should normally provide regulatory references within four weeks of request, rather than six. This applies to insurance intermediaries and is intended to reduce recruitment issues, while maintaining existing standards of fairness and legal compliance when investigations are incomplete.
• Conduct Rules and enforcement focus: Senior Manager and Conduct Rules themselves remain unchanged, and breaches continue to be reportable in the usual way. However, the FCA confirms that its enforcement and supervisory focus will increasingly be directed towards substantive misconduct and consumer harm, rather than isolated technical or documentation failings.
  
  For the insurance sector, this is particularly significant in the context of the Consumer Duty. The FCA is positioning SMCR as a primary mechanism through which Duty outcomes will be tested, especially where firms fail to identify, manage or remediate foreseeable harm. This approach is likely to be felt most acutely in distribution chains, including AR arrangements, where governance weaknesses can translate directly into consumer detriment.

5. Next steps and timeline

Industry reaction to Phase 1 has been cautiously positive. Trade bodies, including the ABI, have welcomed the regulators’ acknowledgement that SM&CR has become overly procedural. However, most firms view Phase 1 as addressing symptoms rather than structural causes, and expectations are firmly focused on Phase 2.

Phase 2 will depend on primary legislation, with HMT expected to bring forward statutory proposals from late 2026, subject to parliamentary time. Further PRA and FCA consultations are anticipated, with implementation likely from 2027.

In the meantime, regulators have been clear that simplification does not equate to reduced expectations around behaviour or governance quality. For insurers and intermediaries, the challenge is therefore not simply whether to simplify, but how to do so responsibly. Firms that use this period to align accountability frameworks with actual decision‑making and risk ownership, rather than merely reducing documentation, will be best positioned as reform progresses.