It doesn’t rain, it pours! Less than a fortnight after the non-financial misconduct (“NFM”) combined Policy Statement and Consultation Paper was released, on 15 July 2025, we had a raft of consultation papers from HM Treasury (“HMT”), the PRA, and the FCA. HMT’s Consultation Paper proposes legislative changes to the Financial Services & Markets Act 2000 (“FSMA 2000”) in order to reduce the SMCR’s regulatory burden by 50% (as reiterated by the Chancellor in her 2025 Mansion House speech). This is supported by the UK Government’s Financial Services Growth & Competitiveness Strategy which includes some additional colour and a timeline. The FCA’s Consultation Paper (CP25/21) proposes “Phase 1” amendments to the SMCR, and the PRA’s Consultation Paper (CP 18/25) proposes the same, although the papers are not completely aligned. We expect a number of these changes will be welcome. Others, less so…

HMT has said it is “…committed to reducing unnecessary regulatory burdens for business and driving growth…” and that burdensome elements of the SMCR could be removed without undermining high standards within financial services. HMT boldly suggests that the proposed changes will reduce the burden of SMCR compliance by 50%, although it isn’t clear who is making that assessment! The key proposals are summarised below.

• Senior Managers and Approvals: HMT are proposing to make legislative changes so that the FCA/PRA (i) have greater flexibility to define Senior Management Functions (“SMFs”), and (ii) can allow firms to notify the FCA/PRA of new appointments for certain roles, rather than seek FCA/PRA pre-approval. The UK Government anticipates a 40% reduction in the number of roles requiring pre-approval for banks and insurers (although HMT suggests the relevant role holders would still be treated as Senior Managers under the Regime). This is likely welcome given the PRA approved 1,130 SMF applications and the FCA approved 5,264 SMF applications in FY 24/25. The UK Government has also said that it plans to reduce the FCA and PRA statutory limit for approving Senior Manager applications from three months to two.
• SoRs: HMT propose removing the prescriptive requirements in FSMA 2000 relating to the provision, maintenance, and updating of SoRs (e.g., notifying the FCA of ‘significant changes’), thus allowing the FCA and PRA to make more flexible rules and guidance. HMT is interested to hear from firms whether the requirement to submit a SoR with an SMF application should be removed from legislation.
• Certification Regime: HMT is consulting on removing the Certification Regime entirely from legislation (I hasten to add “when Parliamentary time allows…”). However, this may not be the end of the Certification Regime entirely…Instead, the FCA and PRA will have the ability to use their rule-making powers to develop a more flexible and proportionate Regime (there are currently c. 262,000 certification functions held by c. 139,000 individuals!). Many of the Certification Regime’s pain points come from the provisions in FSMA 2000 (e.g., the annual certification requirement), so the regulators cannot ease the burden of it without this legislative change.
• Other potential changes: HMT has asked whether there are other elements of the SMCR, enshrined in legislation, which it should consider removing because they create a “disproportionate burden” for firms. Examples include: (i) legislative changes relating to the Conduct Rules (e.g., removing requirements around training and breaches), (ii) whether the requirement for firms to annually consider whether there are grounds to withdraw an SMF’s approval should be removed, and (iii) whether there are additional measures needed to support the movement of international talent into Senior Manager roles in the UK.
• Other firms: HMT has stated that, at this point, it does not intend to take forward secondary legislation to apply the SMCR to Central Counterparties, Recognised Investment Exchanges, Central Securities Depositories, or Credit Ratings Agencies.

These form “Phase 1” of the regulators’ proposals, which have the aim of “streamlining the current processes, reducing the regulatory burdens on firms and providing greater clarity on the application of certain requirements”. Both the FCA and PRA have confirmed there will be a “Phase 2”, but we won’t see this until after any legislative changes have been made (see above). “Phase 2” is potentially quite significant in comparison to Phase 1 as it may involve reducing the number of SMF roles (including those requiring pre-approval) and it may fundamentally change the scope and operation of the Certification Regime, among other things.

• 12-week rule: Where a Senior Manager’s absence is “temporary” or “reasonably unforeseen” (with additional draft guidance provided as to what these terms mean), the FCA/PRA propose that firms will have 12 weeks to submit an SMF application for a replacement Senior Manager (the “incoming SMF”). The incoming SMF could then perform the SMF role until their SMF application is determined, and would be subject to the fitness and propriety (“F&P”) requirements, and both the Individual and Senior Manager Conduct Rules (“ICRs” and “SCRs”) during this period. The FCA/PRA would not require updated SoRs, where relevant, such as in cases of reallocated PRs, until the 12 week period has expired. If recruitment processes take longer than 12 weeks, firms need to submit an SMF application for an interim candidate during the 12 week period. The PRA is clear that it will monitor the use of the 12 week rule to ensure it isn’t being over-used or used incorrectly. Both regulators highlight the importance of succession planning. Given most Senior Manager employees are on at least three months’ notice, we expect the industry may have some views on the practicality of the proposed changes – we see them as a potential missed opportunity. There is also the question of reallocating PRs to non-SMFs that we think may make sense in certain circumstances, but the regulators don’t seem to be budging on.
• Guidance on the SMF 7: Both the FCA and PRA are proposing the inclusion of detailed guidance on the scope of the SMF 7 function. The PRA and FCA include examples of those who are likely to fall within scope (e.g., group executives responsible for material business remotely booked into the PRA authorised entity, and/or group executives with responsibilities for setting and overseeing risk management and/or controls in the PRA authorised entity). The FCA’s proposed examples are slightly different (e.g., there is a focus on the Group CFO role, among others). The FCA see this proposal as reducing the number of SMF 7 applications made by firms. While a firm is primarily responsible for identifying SMF 7s, if the PRA identifies someone as an SMF 7, the firm must submit a Senior Manager application for them without delay.
• SoRs and Management Responsibilities Maps (“MRMs”): Both the FCA and PRA are proposing that SoRs and MRMs (as applicable) would not have to be submitted soon after a significant change to a SMF’s responsibilities. The way the papers are worded is somewhat unclear, however, it appears that under the PRA’s proposals SoRs and MRMs would need to be submitted to the regulator within 6 months of a significant change (unless required sooner because of other circumstances, such as being requested by the firm’s supervisor). The FCA proposes that SoRs would only need to be submitted periodically and no later than 6 months after the last submission (i.e. all SoRs that have changed over the last 6 months can be submitted in one go, and only the latest version needs to be submitted). Solo-regulated firms that haven’t changed anything wouldn’t need to submit anything. For dual-regulated firms, if more than one significant change is made during the 6 month period, then they would have to submit all updated versions during that period (i.e., the regulators want to see all the significant changes made). Neither of these proposals change the obligation on firms to have up to date internal records of each change.
• Criminal record checks: The FCA and PRA propose to extend the period within which firms would be able to rely on criminal record checks previously conducted from 3 to 6 months when submitting an SMF application. The FCA also proposes that for existing SMFs applying for a new SMF role in the same firm or group, there will be no requirement for the firm to conduct a new criminal record check. The PRA has also sought to clarify when criminal record checks are required for non-SMF holders (e.g., non-executive directors and KFHs).
• Guidance on Certification Regime: Additional guidance is being proposed to clarify and streamline the certification and recertification process. While not novel or particularly groundbreaking, the regulators’ emphasis on taking a proportionate approach to annual certification processes where nothing has changed may open the door to firms taking a lighter touch approach.
• Other: Both regulators are proposing to extend the resolution-related roles that should be exempt from most of the SMCR (although relevant individuals would still be subject to the ICRs).

• Enhanced SMCR firm threshold: The FCA proposes a 30% increase to the financial criteria thresholds for the Enhanced SMCR firm categories. It suggests that 20-30 of the 550 firms currently categorised as Enhanced scope firms would then fall below the revised thresholds. For example, the AUM threshold would rise from £50bn to £65bn (calculated as a 3-year rolling average), and the total intermediary regulated business revenue figure would rise from £35m to £45m or more per year (calculated over a 3 year rolling average). The FCA is also proposing a mechanism by which these figures are updated every 5 years.
• Changes to Form As: More changes to the Form A are proposed…largely they focus on indicating where documentation requested can be reduced or consolidated (e.g., the skills gap analysis, competency assessment and learning and development plan can be in one document). Improvements to other forms are coming too…
• Guidance on allocation of PRs: The FCA is proposing more guidance on (i) splitting PRs, (ii) the FCA’s preferred allocations for each PR across different SMCR firms (which to some extent puts into the Handbook bilateral guidance the FCA has given firms/industry over the years, but goes also goes further). The FCA is clear that firms would not have to reconsider their current allocations to align with the guidance, but firms would have to consider it for future SMF changes…
• SMF 18 (Other Overall Responsibility Function): The FCA is proposing additional guidance on who should hold the SMF 18 role to limit firms misallocating this role to individuals who are insufficiently senior. The FCA has said that it would challenge firms on applications which do not observe this guidance, and it believes the number of SMF 18 applications will reduce as a result. The FCA is also proposing (for solo-regulated firms only) to allow SMF 18s to hold PRs (beyond PR(z)). Dual-regulated firms would need to obtain the regulators’ agreement using a waiver.
• Streamlining Certification Functions: For dual-regulated firms, if someone is a PRA Material Risk Taker (“MRT”), PRA Significant Risk Taker, or KFH, it is proposed that they do not also need to be certified as an FCA MRT. Additionally, it is proposed that those holding the FCA MRT Certification Function wouldn’t also need to be certified as the Significant Management Function, and those holding any Certification Function wouldn’t need to be certified as a “manager of a certified person”. This would reduce the burden of updating the Directory. Specific, additional guidance is proposed covering when an SMF needs to be a certified person (something we discussed with the FCA bilaterally years ago).
• Conduct Rules: Perhaps it’s fatigue from hours of combing through the consultations, but we are asking ourselves why the FCA is not doing one refresh of COCON given the recent NFM paper, rather than two consultations at once?! One big potential change for some firms is the FCA’s suggestion that there can be reportable and non-reportable Conduct Rule breaches (i.e. Conduct Rule breaches that result in a disciplinary action and those that don’t). It is hard to see how this might work in practice given that firms generally are only in a position to determine that there has been a Conduct Rule breach following a fair disciplinary process during which the employee is able to make representations. It may be that we can address the FCA on this practical point not least so as to align this element of the SMCR with employment law. The FCA is proposing additional guidance on: (1) when a Conduct Rule breach is reportable and the interplay between COCON notification requirements and other regulatory notification requirements because of perceived under-reporting, (2) what is meant by “suspension” and “reduction and recovery of remuneration”, (3) examples of conduct which would be considered a breach of SCR2 (i.e., failing to take reasonable steps to ensure the business of the firm for which the SMF is responsible complies with the relevant regulatory requirements), and (4) SCR4 (disclose appropriately any information of which the FCA or PRA would reasonably expect notice), with a real focus on Senior Managers having to self-report themselves to the FCA/PRA in certain scenarios.
• Regulatory references: The FCA proposes shortening the period firms have to provide a regulatory reference from 6 to 4 weeks (this would be guidance, not a rule). Both the FCA and the PRA provide further draft guidance on when misconduct under investigation should be included in a regulatory reference if an individual leaves before it is concluded. The FCA is also proposing to update SYSC 22 to cover reference requests by firms seeking authorisation and updates the rules/guidance around appointed representatives.
• Extend Directory update deadlines: The FCA propose extending the deadline to update the Directory to 20 business days for most updates, but the 7 business day deadline in relation to staff departures will remain.

• Controllers and SMF 7: The PRA is proposing that the SMF 7 role is extended in certain circumstances to controllers and their representatives if they exercise or plan to exercise significant influence over the decision making and day-to-day management of the firm. This wouldn’t, as proposed, include investor non-executive directors.
• KFHs: The PRA is proposing to clarify that individuals identified as KFHs would only be required to submit an SMF application form and supporting materials, and would not also be required to submit a Form M (notification of a non-executive director or key function holder).
• Inventory: Following feedback received around making the rules, expectations and guidance underpinning the Regime easier to navigate, the PRA is proposing to create an SMCR policy index and key policies section on the website to indicate where relevant information can be found (such as the relevant paragraph in a particular Supervisory Statement).

• PRA threshold changes: The PRA is not changing the small non-directive insurer threshold or the threshold at which a deposit taker becomes a small firm for SMCR purposes.
• Fast-track SMF approval process: A fast-track SMF approval process for current SMFs or those with significant experience is not proposed. However, the regulators will be engaging with industry bodies further on the SMF approval process to ensure there is clarity on their expectations.
• Fewer PRs: The PRA and FCA are not reducing or consolidating the PRs firms are required to allocated to SMFs. This may be part of Phase 2.
• Reasonable steps guidance: The PRA and FCA are not issuing more guidance on “reasonable steps”.
• Collective responsibility: The mantra remains that individual accountability complements collective responsibility. No further guidance is being issued.
• Material Directory changes: The FCA is tinkering with the Directory (as above), but it is suggesting that Phase 2 will be used to explore additional changes.
• Enforcement: Shoehorning this in here because it is quite interesting…the FCA has said (as of 8 July 2025) that it has opened 98 investigations potential breaches of COCON, which has led to 8 financial penalties and 6 accompanying prohibitions. 22 of those investigations are ongoing and the FCA has said more penalties should be expected.