Clifford Chance

On 15 July 2025, HM Treasury, the Financial Conduct Authority (FCA), and the Prudential Regulation Authority (PRA) each published consultation papers aimed at simplifying the Senior Managers and Certification Regime (SMCR).

Since its introduction in 2016, the SMCR has mapped out the standards expected of individuals working within financial services firms and required firms to maintain arrangements to certify the fitness and propriety of significant numbers of those individuals. Consistent with the UK Government's growth agenda, the latest proposals are intended to reduce administrative burdens, clarify responsibilities, and ensure that the regime remains fit for purpose. Below, we consider some of the key questions and takeaways arising from these developments.

What are the headline changes proposed to the SMCR?

The consultation papers set out a range of proposed reforms, including:^[1]

• Removing the existing Certification Regime from legislation, giving scope for the FCA and PRA to design a more proportionate replacement through their own rule-making powers;
• Reforming the approach to pre-approval for Senior Managers, including greater flexibility and time for applications to approve new Senior Managers in cases of unexpected or temporary changes ("the 12-week rule");
• Simplifying requirements and extending timeframes for updating Statements of Responsibility (SoRs), allowing more flexibility for firms when notifying the FCA of updates to SoRs;
• Eliminating duplication where individuals are certified for multiple functions;
• Streamlining annual "fit and proper" checks for certified individuals;
• Extending timeframes for updating the FCA Directory of Certified Persons;
• Increasing the validity period for criminal record checks for prospective Senior Managers;
• Providing clearer definitions for certain Senior Management Functions (SMFs); and
• Issuing further guidance on the allocation of prescribed responsibilities, application of the Conduct Rules, and related reporting requirements including regulatory references (for example, guidance on when a firm may need to disclose suspected misconduct where the employee leaves the firm before an investigation is completed, and the outcome is relevant to fitness and propriety, and on obtaining references from an overseas employer).

Will the reforms help streamline the SMCR?

By focusing on the accountability of senior management within financial institutions, the SMCR has resulted in standards of governance and management improving across the financial services industry. However, aspects of the regime, particularly navigating the approvals process itself, are often viewed as cumbersome and not especially user-friendly. Some of the proposals are welcome, as they aim to better align the application process with the practical timelines firms face in reality. For example, under the proposed changes, firms will have 12 weeks to submit an application under the 12-week rule, rather than that length of time to receive a decision on an application. There is also a suggestion that the regulators may offer firms more flexibility in appointing interim Senior Managers before seeking formal approval. Other proposals are less welcome, such as reaffirming that only Senior Managers (and not applicants, even under the 12-week rule) may hold prescribed responsibilities, meaning that there will still need to be some reallocation of those responsibilities amongst existing approved Senior Managers. It is hoped that the trailed potential streamlining of the prescribed responsibilities may reduce the practical effect of this decision.

Does the proposed reform mark the end of the Certification Regime, and what does this mean for firms?

HM Treasury has proposed removing the existing Certification Regime from legislation altogether. In practice, however, this will not mean that firms can simply dispense with certifying staff. The FCA has said that it is considering how to design a streamlined replacement, if HM Treasury makes these legislative changes. In the meantime, the FCA and PRA propose new guidance intended to reduce some of the burden on firms, including in relation to the re-certification of staff. Some of this guidance, including that firms can embed re-certification within existing processes such as performance reviews, already accords with the practice of many firms. Which further changes will be made by the FCA and PRA to the Certification Regime will depend on how the changes to legislation contemplated in the HM Treasury consultation paper are implemented. It is clear from the FCA's consultation paper that the FCA considers the Certification Regime offers considerable benefits in its current form, including in ensuring that individuals are fit and proper for their roles. However, it is likely that both regulators will wish to make amendments (and, in so doing, demonstrate their commitment to reducing administrative burdens and supporting growth). An example of an area in which refinements may be made could include reducing the frequency of the re-certification process, which is currently required by legislation to be conducted annually.

Will simplifying Statements of Responsibility (SoRs) really reduce complexity?

The FCA and PRA are proposing changes to simplify the process of updating SoRs and reduce unnecessary administrative burdens. Allowing firms to submit amended SoRs every six months will undoubtedly ease the burden for large firms, some of which have experienced having to submit numerous amended SoRs on a frequent basis. Ultimately, most of the time and effort in relation to SoRs derives from firms' and individuals' efforts to delineate responsibilities and avoid ambiguity, in order to provide a clear record of who is responsible for what and to prevent accountability gaps or overlaps. This may mean that, in practice, streamlining the regulatory framework in this area may not significantly abridge firms' own processes or reduce the amount of time taken to ensure that SoRs accurately reflect internal delineations of responsibilities.

What are the next steps and how should firms prepare?

The consultation period runs until 7 October 2025, and firms are encouraged to review the proposals in detail and consider responding. The reforms will take place in two phases, with an initial set of reforms that can be delivered without legislative change (phase 1), followed by more fundamental reforms to be considered after HM Treasury consults on and implements changes to the legal framework (phase 2).

There are still a number of areas where the regulators' approach remains to be clarified. For example, if new legislation is adopted, phase 2 of the SMCR reform may revisit the framework for defining SMFs, to potentially allow the regulators to reduce the number of Senior Manager roles.

The FCA plans to publish the final rules and guidance in respect of the phase 1 reforms in a Policy Statement in mid-2026, after reviewing consultation feedback. The PRA also expects the implementation date for changes to be around mid-2026. However, HM Treasury's consultation simply states that the Government intends to remove the Certification Regime from legislation "when Parliamentary time allows", and that the regulators will be able to use their rule-making powers to establish a replacement regime once the legislative changes are made. As such, firms are unlikely to see the fully revised SMCR regime implemented before the second half of 2026 or, more realistically, in 2027.

In the meantime, firms should begin assessing their current SMCR frameworks, with particular focus on certification processes and SoRs. Early engagement with the proposals will help to identify areas where policies and/or contractual documentation (such as service agreements) may need to change, and to ensure firms are well placed to adapt once the final rules are published.

The consultations serve as a reminder that the regulators remain focused on individual accountability and conduct standards within the financial services sector. Notably, these proposals follow closely after the publication of the FCA's final rules on non-financial misconduct, which come into force in September 2026, so firms can begin planning for their implementation in parallel.

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[1] See the respective consultation papers dated 15 July 2025: (1) HM Treasury, (2) the FCA and (3) the PRA.