UK: PRA and FCA consult on SM&CR Phase 2 reforms

Why should I read this?

On 22 October 2026, the PRA and the FCA each published consultation papers proposing significant changes to the Senior Managers and Certification Regime (SM&CR).

• The PRA published Consultation Paper CP14/26, “Review of the Senior Managers and Certification Regime (SM&CR) – Phase 2”.

• The FCA published CP26/37 “Senior Managers & Certification Regime Review: Phase 2” at the same time.

Both build on the Phase 1 changes made in April 2026 by PRA Policy Statement PS12/26 and FCA Policy Statement PS26/6. The PRA describes the proposals as the most significant reforms to the regime since 2016. These proposals will affect all authorised firms, including asset managers and cryptoasset firms due to come into scope of the regulatory perimeter.

The stated purpose of these proposals is to simplify the SM&CR, in order to substantially reduce the regulatory burden for firms and the number of submissions required to be made to the regulators. This is therefore an opportunity for authorised firms to feed into a discussion which should result in a lowering of the compliance burden and the streamlining of processes.

The main proposals are to replace the requirement for pre-approval for some Senior Management Functions (SMFs) with a requirement to simplify notify the regulator of these appointments. The regulators also intend to withdraw the Certification Regime and Directory. Other proposals include reducing the number of prescribed responsibilities to be allocated by firms and limiting the types of conduct rule breaches that need to be reported to the regulator.

Much of the package depends on Parliament passing the Financial Services and Markets Bill 2026 (FSM Bill) largely in its current form. Both regulators expect implementation in the second half of 2027. Responses to both consultations are due by 22 January 2027.

See our previous client briefing “UK: Reform of the Senior Managers & Certification Regime”.

What should I do about SM&CR Phase 2?

These proposals will result in substantial changes to the existing regime and provide opportunities for firms to streamline their processes.

• Respond to the consultations

This is an opportunity for firms to shape the revised regime and take advantage of the regulators’ desire to lower the regulatory burden on firms.

• Consider how the proposals apply to your business

While the proposals will impact all regulated firms, they will not apply to all firms in the same way. FCA regulated firms are categorised as “limited”, “core” and “enhanced” and must apply the version of the SM&CR that applies to their category. The revised regime will also apply in a different way to the different categories of firm. In addition, PRA regulated firms must consider both the FCA’s and the PRA’s proposals, which are slightly different.

• Map your SMFs

The proposals are extensive and will require planning to ensure ongoing compliance. Firms should identify which of their SMF roles will become notified and which will stay pre-approved. Check any SMF7 group roles against the new guidance. Firms who currently have a SMF18 or SMF22 must consider whether it is necessary reallocate any of the responsibilities they hold, as the FCA plans to remove those SMFs.

• Evaluate your vetting processes

Firms will carry full responsibility for assessing notified SMFs as fit and proper. The Senior Manager holding Prescribed Responsibility A will answer for that vetting. Review your fitness and propriety processes now.

• Plan for the end of certification

Decide what internal checks you will keep for staff formerly certified. Firms must continue to meet the FCA requirements in SYSC to ensure the competence of their employees. CRR and Solvency II firms must update their processes to ensure they also assess the integrity and honesty of these staff, as part of new requirements proposed by the PRA.

• Check your Enhanced status

The proposals include a plan to raise the thresholds applicable to “enhanced” firms. Firms should therefore review their classification under the proposed thresholds. Asset managers with less than £100 billion of assets under management may move from Enhanced to Core status. 

• Update your policies and procedures

Revise your recruitment, succession planning, temporary cover, Conduct Rules and breach reporting procedures. Keep Statements of Responsibilities (SoRs) and Management Responsibilities Maps (MRMs) up to date internally. The proposals give rise to opportunities to streamline processes and improve efficiency, but they need to be considered carefully to ensure ongoing compliance.

What else do I need to know about SM&CR Phase 2?

SMF notification

The regulators plan to allow some of the current SMF roles to be notified to them, rather than requiring individuals holding these functions to be pre-approved. Firms will be expected to assess the candidate and notify the regulator of their appointment before their start date. The PRA expects SMF applications to fall by more than 40% as a result. Notified SMFs will face the same duties as pre-approved SMFs, including the Duty of Responsibility and the Senior Manager Conduct Rules. Regulatory references will remain for SMF candidates, whether approved or notified.

• Proposed PRA notified SMFs:

SMF5, SMF6, SMF7a, SMF8, SMF10, SMF11, SMF12, SMF14, SMF20, SMF20a. These include Heads of Internal Audit, Chairs of the Risk, Audit and Remuneration Committees and Chief Actuaries.

• Proposed PRA pre-approved SMFs:

SMF1, SMF2, SMF4, SMF7, SMF9, SMF19, SMF23, SMF23a, SMF24, SMF25, SMF26. These include Chief Executives, Chief Finance and Chief Risk Functions, Chairs and Chief Operating Officers.

• Proposed FCA notified SMFs:

SMF5, SMF10, SMF11, SMF12, SMF13, SMF14 and SMF15 at dual-regulated and Enhanced firms. These include Heads of Internal Audit, committee Chairs and Senior Independent Directors. The FCA proposes no change to SMF roles at Core and Limited Scope firms.

The regulators intend to retain the requirement for the Chief Operations Function (SMF24) to be pre-approved because of artificial intelligence and cyber security risks.

Notification puts the burden of vetting on firms. Firms that make a poor appointment will no longer have regulatory scrutiny as a safeguard. Both regulators accept that problems may surface later than now. The PRA notes the proposals carry “some increase in prudential risk”. The FCA may consult on reintroducing pre-approval if firms make unsuitable appointments.

Changes to certain SMF functions

Each regulator has also made changes to the scope of the SMF7 (Group Entity Senior Management) Function.

• For PRA-regulated firms, the PRA intends to split SMF7 into a pre-approved SMF7 and a notified SMF7, and have proposed guidance on the roles which would fit within each. Group roles such as Group Chief Executive, Chief Risk Officer and Board Chair will require pre-approval. SMF7s in UK branches or subsidiaries of overseas banks will often only need notification.

• The FCA intends to narrow the scope of SMF7 at solo-regulated firms to individuals with significant influence who perform one of seven specified group functions. It does not propose a notified SMF7 category. 

The FCA proposes to withdraw the categories of SMF18 (Other Overall Responsibility) and SMF22 (Local Responsibility). Firms must consider whether this will mean they need to reallocate relevant responsibilities held by these staff to other SMFs, which may mean revising SoRs and MRMs.

Pre-approval will be required in exceptional cases

The PRA proposes using its section 55M Financial Services and Markets Act 2000 (FSMA) powers to require pre-approval for notified roles in exceptional cases. The FCA proposes using its section 55L FSMA powers if required. Examples include if there are serious concerns about a firm’s governance or its ability to assess fitness and propriety. The PRA has advised that it may use this power before implementation for some firms.

For pre-approved roles, firms should obtain approval before announcing an appointment. Announcing “subject to regulatory approval” should happen only if strictly necessary, for example under market disclosure duties.

Responsibilities and documents

• Both regulators propose to withdraw several Prescribed Responsibilities. The FCA will remove nine and will retain A, D and Z for Core and Enhanced firms, plus J-3 for Enhanced firms.

• Firms will no longer submit updated SoRs and MRMs after each significant change. Firms must keep these documents current and provide them on request. The FCA proposes a six-year retention period, or ten years for some dual-regulated firms.

• Firms with a single Senior Manager need not maintain SoRs or MRMs.

Temporary cover and interim appointments

The current regime contains provisions to allow individuals to be appointed as SMFs on a temporary basis for a period of 12 weeks, pending regulatory approvals. Both regulators propose extending this period from 12 to 18 weeks. The PRA expects firms to use the extra time only with clear justification. 

Enhanced firm thresholds

The FCA proposes raising thresholds so fewer firms are classified as Enhanced:

• Asset managers: from £65 billion to £100 billion of assets under management

• Consumer credit lenders: from £130 million to £200 million of revenue

• Intermediaries: from £45 million to £75 million of revenue

• Wholesale markets firms: the Significant SYSC test is replaced by £750 million threshold of assets, on a three-year rolling average

• Mortgage lenders: unchanged at 10,000 mortgages outstanding

• Client assets: unchanged at CASS Large firms

Firms that drop to Core status remain subject to Senior Manager accountability and the Conduct Rules. The FCA may still require a firm to comply with the Enhanced regime because of its size, complexity or market impact.

Removing the Certification Regime and the Directory

The FCA and PRA have proposed to withdraw the Certification Regime. Firms will no longer need annual fitness and propriety assessments, certificates or regulatory references for previously certified staff. Assessments under way at implementation of the proposals need not be completed.

The regulators have justified this deletion on the basis that firms will still need to ensure compliance with the requirement in the FCA’s SYSC handbook requiring firms to ensure the competence of their employees. Firms should therefore evaluate their vetting processes to consider what changes may be made to streamline processes while ensuring compliance with this rule.

The PRA have also proposed new requirements to ensure that formally certified staff of CRR and Solvency II firms are assessed on the basis of their integrity and honesty. This will need to be reflected in vetting processes and fitness and propriety checks for these staff.

The FCA proposes retiring the Directory and ending the related reporting and attestation processes currently required. This means that information on many individuals below SMF level will no longer appear in a public FCA source.

Conduct Rule Breaches, forms and other changes

The regulators have proposed a range of other simplifications and amendments to the regime as part of these consultations. Again, while the overall aim of these proposals is to simplify the regime, the changes proposed are extensive. This means the proposals need to be considered carefully to ensure ongoing compliance while taking advantage of the opportunity to streamline processes. For example:

• The regulators have proposed changes which will mean that fewer individual conduct rule breaches will need to be reported to the regulator. The aim is to ensure that only more serious misconduct is reported, and that the process and the relevant forms are streamlined. Most of the changes proposed are to the rules that apply to non-SMFs. In many cases, reporting will only be required for final written warnings and dismissals for non-SMF staff. Firms will also have more time to report certain conduct-rule breaches.

• There are plans to change and withdraw many forms, and to move forms out of the Handbook to the FCA website. There are also plans to simplify forms for SMF approvals by removing some of the required supporting documentation (including details on handovers).

• PRA regulated firms which currently have individuals who are “notified Non Executive Directors” or “notified Key Function Holders” will no longer need to notify these roles.

Application to asset managers

Most asset managers are solo-regulated and fall under CP26/37. The higher Enhanced threshold may mean that some asset managers will now move to Core status. For Enhanced asset managers, SMF5 and committee Chair roles will only need to be notified under the proposals. Asset managers will no longer need to certify staff, report to the Directory or provide formal Conduct Rules training. Enhanced firms with SMF18 holders will need to consider whether it is appropriate to reallocate their responsibilities.

Next steps

Both consultations close on 22 January 2027. The FCA expects to publish final rules in the first half of 2027. Both regulators aim to implement the changes in the second half of 2027, once the FSM Bill provisions commence. Firms may submit notifications for newly notified roles up to one month before commencement. Existing approvals will continue to apply after implementation.

How Eversheds Sutherland can help

We advise banks, insurers, asset managers and other financial services firms on the SM&CR. Our team can help you:

• Prepare your response to CP14/26 and CP26/37

• Map your SMFs to the new notified and pre-approved categories

• Assess whether your firm remains Enhanced or moves to Core status

• Review your fitness and propriety and vetting procedures

• Update SoRs, MRMs, breach reporting and succession policies