On 15 July 2025, HM Treasury (HMT), the Financial Conduct Authority (FCA), and the Prudential Regulation Authority (PRA) jointly released proposals to reform the Senior Managers and Certification Regime (SMCR), the UK’s core accountability framework for financial services.
Why is SMCR being reformed?
The SMCR was introduced in 2016 in response to the global financial crisis, with the goal of strengthening personal accountability and improving standards of conduct in financial services. However, over time, the regime has grown in scope and complexity, leading many in the industry to call for reform.
In 2023, HMT launched a Call for Evidence and the FCA and PRA issued Discussion Paper 23/3, which highlighted industry feedback around operational burdens, regulatory delays, and lack of proportionality, particularly for firms with less complex business models.
Overview of proposals outlined in the three consultations
HMT’s proposals focus on amending the legislative framework underpinning SMCR which will in turn enable the FCA and PRA to have more flexibility in shaping the regulation around it. The key proposals include:
- Removal of the Certification Regime
- Streamlining the Senior Managers Regime through:
- scaling back the number of Senior Management Functions
- reducing overlap and complexity in maintaining Statements of Responsibilities (SoRs)
- Supporting international competitiveness.
Proposed changes will enable the FCA and PRA more flexibility in development of supervisory tools and proportionality of application.
Additional highlights in the consultation include enhancing proportionality in how the SMCR applies to different firm types, clarifying expectations for SMF handover, delegation, and cover arrangements and ensuring coherence with FCA reforms to maintain consistency in the application of the regime across the supervisory perimeter.
What comes next?
The proposed reforms represent the most significant update to the SMCR since its inception. The combined effect of these proposals would be a substantial simplification of the SMCR framework, particularly for solo-regulated firms. However, firms should consider the impact of such changes. It is likely that repelling of the Certification Regime may mean a heavier reliance and pressures on internal governance, culture and accountability. Firms should take steps to analyse the impact of proposed changes on their operating models and governance arrangements and may also consider potential changes required to align their SMCR, HR and onboarding policies.
The consultation period for all three publications closes on 7 October 2025 and we strongly recommend firms actively engage with the consultation process individually or via trade and industry bodies to help shape the final regulations. Changes in the legislation and regulation can be expected in 2026 with phased implementation period likely. The FCA and PRA highlighted further plans for Phase 2 of their reform once legislative changes are enacted.
Square 4’s take on the SMCR reform
While introduction of SMCR certainly helped achieve the objective of greater accountability and enhancing culture of good conduct across the market, the consulted reform of the SMCR regime is not only welcome, but overdue. Working with firms of varying sizes and complexity, we see firsthand the challenges of establishing a well working governance framework, aligning SMCR, risk and operational frameworks while navigating heavy administrative burdens of the regime. Additionally, lack of proportionality in application based on the size and complexity of firms can be seen as unfairly disadvantaging small and middle sized firms.
There is little doubt that the government’s agenda of reducing complexity and increasing innovation and UK’s competitiveness in the global market has played a pivotal role in accelerating these reforms. Over the past two years, the Treasury has made it clear that regulation must enable, not stifle, growth and investment. By embedding competitiveness as a statutory objective for regulators, and pressing for reform through the Mansion House and Edinburgh policy programmes, the government has created the political space and mandate for the FCA and PRA to revisit how they balance oversight with proportionality.
We’re now seeing the result: a coordinated and pragmatic reform package that preserves the core of SMCR while modernising its delivery.
