Reforming the Senior Managers and Certification Regime

As part of the Government’s Leeds Reforms, launched on the same day as the Chancellor’s Mansion House speech on 15 July:

• HM Treasury published a consultation on Reforming the Senior Managers & Certification Regime (the Treasury Consultation); and
• the FCA and PRA separately published consultations setting out Phase 1 of their respective reviews, with a proposed set of reforms that can be delivered without legislative change (the Regulators’ Consultations).

As the Chancellor previously announced in her 2024 Mansion House speech, the Government has decided to overhaul the regime, proposing to remove most of the certification regime from legislation.

Background

The Senior Managers and Certification Regime (SM&CR) was introduced in stages following the financial crisis of 2008, to enhance governance and individual accountability within financial services firms. The certification regime, in particular, has attracted criticism for imposing disproportionate administrative burdens on firms. The Government is concerned that this may be inhibiting growth and the UK’s competitiveness in the market for international talent.

In December 2022, the previous government announced that the Treasury, FCA and PRA would review the Senior Managers and Certification Regime.

In March 2023, the FCA and PRA jointly published DP1/23: Review of the Senior Managers and Certification Regime (the DP) inviting views on the regime’s effectiveness, scope and proportionality, and on potential improvements. The Treasury also launched a Call for Evidence.

What are the key proposals set out in the Treasury’s Consultation?

Changes to the legislative framework for the Certification Regime

In the Chancellor’s November 2024 Mansion House speech, the Chancellor committed to consult on removing the current Certification Regime from legislation and replacing it with more proportionate arrangements.  

The Treasury Consultation aims to deliver on the earlier commitment from the Chancellor with proposals to remove the Certification Regime from legislation when Parliamentary time allows. Among other things, the proposals involve removing from the Financial Services and Markets Act 2000 (FSMA):

• the duty for firms to take reasonable care that no employee perform a Certification Function unless certified by the firm as “fit and proper” to do so;
• the requirement for firms, when considering whether to issue a certificate, to have regard to the PRA and FCA rules as to the circumstances in which an employee is “fit and proper” to perform a role;
• the requirement for certificates to be issued annually, stating that the firm is satisfied the person is fit and proper to perform the function to which the certificate relates and setting out the aspects of the affairs of the firm that the employee will be involved in; and
• the requirement for the firm to keep a record of every employee who has a valid certificate.

The Consultation notes that some of these, or similar requirements might feature in any new rule-based regime established by the regulators. However, a rule-based regime would allow the regulators greater flexibility to provide a more proportionate regime and one that more easily respond to changes over time.

Changes to the Senior Managers Regime

The changes to the Senior Managers Regime aim to increase flexibility and proportionality.

The Government is proposing a package of measures to enable the regulators to radically streamline the regime whilst still maintaining high standards in financial services firms, which include:

• reducing the overall number of senior managers within the regime by providing greater flexibility for the regulators in specifying the list of Senior Management Functions (SMFs) for which regulatory pre-approval is required;
• modifying the statutory requirement in FSMA which currently requires firms to ensure all senior managers are subject to prior approval by the regulator, with a view to allowing firms the ability to appoint certain senior managers without pre-approval. For roles where pre-approval by the regulators is not required, firms would still need to ensure the senior manager meets the fitness and propriety standards and notify the relevant regulator of their appointment.

FSMA includes a number of prescriptive requirements in relation to how statements of responsibilities are provided, maintained and updated and it requires that any significant change in allocation of the responsibilities has to be reflected in an updated statement and provided to the regulators. The Government intends to make changes to these requirements to support regulators in taking a more flexible approach.

FCA Consultation: CP25/21: Senior Managers and Certification Regime review (CP25/21)

In this first phase of reforms the FCA is proposing to:

1. Improve the efficiency of the 12-week rule, which allows someone to cover for a Senior Manager without being approved, under certain conditions. In practice, the 12-week rule is typically far too short a period of time and nor does it align with the period that the regulators can take to approve a senior manager application. This has resulted in firms finding themselves at risk of breaching the regime or seeking regulatory forbearance (with inconsistent responses from the regulators). The FCA is proposing to change the 12-week rule so that firms would have 12 weeks to submit an application for an SMF, rather than 12 weeks to get a decision on an application. As long as a firm submitted an application for a replacement permanent or interim candidate within the 12-week period, the firm would not have breached the rule. Once an application has been submitted, the interim individual could continue in place until the application is determined, noting that the interim SMF holder would be subject to the Senior Manager Conduct Rules whilst they are in situ. The FCA notes in its consultation paper that it would be beneficial for firms and the FCA to apply for a permanent candidate rather than an interim one. That is all well and good, but where the replacement is to be an external candidate, finding a permanent replacement candidate in 12 weeks may still prove a challenge.
2. Streamline the Senior Management Function (SMF) approval process, including planning potential changes to processes and communications. The FCA proposes making further amends to Form A (which firms must use to apply for an individual to perform SMF roles) to improve its usability including a confirmation that some of the documentation requested in the form can be reduced or consolidated where appropriate. The FCA also is working further on simplifying and digitising the online forms to make the application process more efficient, accessible and less duplicative.
3. Change the requirements applicable to criminal background checks. The FCA proposes increasing the validity period of criminal record checks for SMF applications from three months to six months and removing the requirement for firms to undertake criminal record checks where an existing SMF holder is applying for an SMF in the same firm or group.
4. Allow more time to report updates to Statements of Responsibilities (SoRs). The FCA proposes to streamline the submission of updated SoRs, by allowing periodic submissions (to be no later than every six months after the last submission) rather than each time firms make a change.
   
   For dual-regulated firms, the PRA proposes in its CP18/25 that firms would have up to six months to submit updated SoRs/MRMs, but if more than one change was made during the period, firms would still be required to submit all the relevant versions (and not the latest version only as under the proposal for solo-regulated firms). The FCA intends to align its approach with the PRA, which may require changes to FCA systems.

5. Remove overlap in certification roles and provide guidance on annual certification to help firms streamline the process. Given that the Treasury has committed to consult on removing the current certification regime from legislation, the FCA will work in tandem to develop a more proportionate regulatory approach in the next phase of the reform. In the meantime, the FCA has proposed a number of streamlining changes involving the provision of additional guidance on the certification process and removing duplication of roles where individuals need to be certified for separate functions (for example an FCA Material Risk Taker where an individual at a dual‑regulated firm is also certified by the PRA).
6. Allow more time for firms to update specified Directory information. The FCA further proposes to reduce the scope of the Directory by reflecting the changes to the scope of certification (discussed above).
7. Provide guidance in areas such as: the applicability of key SMF roles; allocation of Prescribed Responsibilities (PRs); and application of Conduct Rules and related reporting requirements. For example, the FCA is proposing to add guidance to help firms determine whether a person is captured by SMF7 – Group entity senior manager at solo‑regulated firms, which the FCA expects will reduce the number of SMF7 applications made by firms (however, note the PRA is planning to broaden its definition of SMF 7 for dual regulated firms – see below). To improve clarity around the role, the FCA is also proposing to amend Handbook guidance to emphasise the considerations a firm should have when determining if the SMF18 function applies.
8. Change guidance about the period in which firms should provide regulatory references about individuals upon request from a hiring firm.
9. Raise the thresholds for becoming an Enhanced SM&CR firm. To ensure the thresholds remain appropriate and catch only the largest and most complex firms, the FCA is proposing to raise the financial criteria thresholds for becoming an Enhanced SM&CR firm for example, for assets under management; the current level is £50bn and this would be raised to £65bn.
10. Make technical changes to the Handbook to align with some of the PRA’s proposals.

At this stage, the FCA has said it is not proposing to remove SMF roles or add additional ones. However, the FCA plans to explore whether SMF roles could be reduced or applications for approvals reduced.

PRA Consultation: CP18/25: Review of the Senior Managers and Certification Regime (SM&CR) (CP18/25)

The PRA proposals in CP18/25:

1. 12-week rule – Chapter 2 of CP18/25 sets out proposals relating to the regulatory determination of SMF applications, including changes to improve the operation of the SM&CR. In relation to the "12-week rule" which allows individuals to perform SMF roles on an interim basis without regulatory approval for up to 12 weeks where the absence is temporary or reasonably unforeseen, the PRA intends to adopt a similar approach to the FCA. As proposed, firms will need to submit a complete SMF application within 12 weeks of the unforeseen departure or temporary absence of the current SMF holder, rather than the rules requiring that the full approval process (including regulatory approval) is completed within 12 weeks. The Senior Manager Conduct Rules would also apply to the interim SMF holder – at the moment, the Individual Conduct Rules apply but the Senior Manager Conduct Rules do not
2. Individuals in scope of the Senior Managers Regime – Chapter 3 of CP18/25 sets out proposals to revise SS28/15, SS35/15 and SS5/21 to give firms more clarity as to who is within scope of the Senior Managers Regime, including the Group Entity Senior Manager (SMF7) function, by way of a non-exhaustive list. The PRA notes it has observed situations where individuals have significant influence over a PRA-authorised firm’s management and decision making but, as they are not employed by group entity, do not fall within the current SMF7 definition The PRA therefore intends on extending the definition of SMF7 to cover controllers and their representatives if they exert significant influence on the day-to-day management of the firm’s affairs. The PRA also proposes to clarify the responsibility for identifying individuals who require approval as an SMF7. It also explains proposals to exclude appointments in relation to the resolution or stabilisation of a deposit-taker.
3. Application and ongoing operation of SM&CR – Chapter 4 of CP18/25 covers the application and ongoing operation of different components of the SM&CR. This includes clarificatory proposals relating to Statements of Responsibilities (SoRs), Management Responsibilities Maps (MRMs), Criminal Record Checks and the Certification Regime, as well as improvements to notification requirements for senior individuals working in insurers, known as Key Function Holders.
   
   The PRA is also proposing to amend the criminal background checks procedures in a similar way to the FCA, including amending relevant application forms such as the "Form A" to extend the period for requiring a check to be undertaken from up to three months to up to six months prior to an application submission.

4. Navigating the SM&CR – Chapter 5 of CP18/25 sets out proposals to enhance firms’ ability to navigate the SM&CR. These include increasing visibility of the inventory of senior manager responsibilities and the creation of a specific SM&CR policy index to be added to the Bank of England’s website. The chapter also proposes the removal of references to certain EU policy materials, redundant references to the Approved Persons Regime and gendered language from SS28/15 – Strengthening individual accountability in banking and SS35/15 – Strengthening individual accountability in insurance.

Phase 2

The above consultation from the regulators includes phase 1 proposals only. In phase 2, both the FCA and PRA intend to explore further reform making use of the additional flexibilities that any legislative amendments would provide.

The FCA for example, in phase 2, intends to work with the Treasury to make additional changes to the regime, including:

• What should replace the certification regime;
• The number of senior managers subject to approval (the FCA noted in CP25/21 that in the next phase of the reform, it will explore whether SMF roles could be reduced or applications for approvals reduced);
• further streamlining of the SMF assessment process, including the documents that are requested and the relevant systems;
• considering expanding upon the 12-week rule for interim SMFs while applying for new SMF approval and allowing firms more flexibility in appointing these individuals.

The PRA has said that as part of a ‘Phase 2’ of reforms, it will consider whether SMFs might be removed from the requirement to seek regulator pre-approval prior to appointment. The PRA expects it to deliver a further, significant reduction in regulatory burden while continuing to support the overall objectives of the SM&CR and firms’ safety and soundness. 

How long is the consultation open for?

The Treasury Consultation ends midnight on 7 October 2025.

CP25/21 is open until 7 October. The FCA then intends to review the feedback and develop final regulatory requirements for publication in a Policy Statement (PS) expected in mid-2026.

CP18/25 also closes on 7 October 2025. The PRA proposes that the implementation date for the changes resulting from the CP would likely be mid-2026.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2025