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The FCA, Treasury and PRA are tabling proposed changes to the SM&CR, alongside raising standards around non-financial misconduct.
At her recent Mansion House speech, Rachel Reeves announced her intention to streamline the SM&CR, ‘reducing the burden it imposes on firms by 50%’. The FCA’s wording echoes this rhetoric, noting it is consulting on measures ‘to improve the efficiency and effectiveness of the SM&CR, with the purpose of streamlining processes and reducing burden on firms’
CP25/21 – Senior Managers and Certification Regime Review
The FCA proposals cover a variety of areas including:
- Reducing the requirement to be certified in more than one function, which the FCA estimates will reduce certification roles by 15%.
- Additional flexibility around the use of the 12-week rule when an unexpected or temporary change of senior manager occurs.
- Increasing how long criminal record checks for senior manager applications are valid for, prior to application submission.
- Streamlining the layout of the Form A, digitalising forms, removing duplication and pre-populating forms where possible.
- Enhancing the relevant thresholds between a core SM&CR firm and an enhanced firm.
- Reducing the regulatory reference timeline from 6 weeks to 4 weeks.
The FCA is also consulting on introducing a periodic prescribed responsibility submission which – for smaller firms who infrequently update the prescribed responsibilities of senior managers – could result in additional work for the compliance function.
Additionally, we are pleased to see the FCA has proposed to provide guidance on whether senior managers need to be additionally certified. This is an area which has often been unclear, and would benefit smaller firms where senior managers are invariably more hands on and likely to need certification.
CP25/18 – Tackling Non-Financial Misconduct in Financial Services
While reducing the regulatory burden, the FCA continues to uphold high standards for culture and conduct across financial services.
The policy statement extends the non-financial misconduct (NFM) rules in banks to non-banks. The FCA has said it is extending the scope of COCON to make it clear that serious misconduct such as bullying, harassment and violence is a matter of regulatory concern.
This consultation paper also proposes adding new guidance in the Code of Conduct (COCON) and the Fit and Proper Test for Employees and Senior Personnel (FIT) sourcebooks. The proposed Handbook guidance has been designed to help firms interpret and apply rules under COCON and FIT (Fit and Proper test), and includes guidance in relation to:
- The boundaries between work and private life
- The use of social media and personal conduct
- Managerial responsibilities to prevent NFM
Is the SM&CR working?
One of the main purposes of the SM&CR was to increase accountability within financial services firms. It has been in place since 2016 for banks and 2019 for solo regulated firms. This feels like sufficient time for the regime to have been fully embedded, however, critics of the regime have long pointed to the low enforcement rate under the rules the SM&CR introduced. The FCA notes in CP25/21 that as of 8 July 2025, it had opened 98 investigations into suspected breaches of COCON (the code of conduct sourcebook that sets out the conduct rules and their application), and these have led to 8 financial penalties (6 of these leading to prohibitions). This represents a relatively low number of investigations given the length of time the regime has been in place and the number of firms the FCA oversees.
The FCA appears to be very interested in the industry’s opinion of SM&CR. Included in its feedback were the results from a survey in a previous discussion paper which included the view that only 57% of respondents found the SM&CR had made it easier for firms to hold staff to account and take disciplinary action when appropriate against them.
The perceived lack of enforcement has led some to question whether the SM&CR has sufficient bite or at the very least whether the regime alone is enough to foster the right actions from firms and individuals.
HMT’s role: Could some of the FCA’s reforms be made obsolete?
The Treasury’s consultation suggests far more wide sweeping changes could be made to legislation. It is consulting on wholesale changes to the SM&CR including:
- Removing the Certification Regime entirely
- Reducing the number of SMFs requiring approval
- Streamlining pre-approval processes for senior managers
If adopted, these changes could make aspects of the FCA’s current consultation redundant. Nonetheless, the FCA should be applauded for seeking to reduce the regulatory burden on firms and acting more quickly than the proposed legislative changes. In her Mansion House address, Reeves noted her expectation for the FCA to regulate for growth and the FCA appears to be taking this feedback on board, not by abandoning accountability, but by streamlining and simplifying procedures as far as it can.
What should firms do?
At this stage firms must update their policies and procedures in relation to the FCA’s policy statement on Non-financial Misconduct and should notify conduct rules staff about the changes. This should include taking reasonable steps to assist staff in understanding how these rules apply.
Following the closure of the FCA’s consultation on SM&CR, we anticipate a corresponding policy statement in H1 2026.
How we can support you:
The FCA’s dual consultations on SMCR and NFM are not radical departures, but rather refinements which reinforce existing expectations around ethical leadership and cultural standards.
Our team can support you in:
- Integrating the new NFM guidance into your SMCR framework
- Redesigning your F&P assessment processes to reflect cultural expectations
- Training your leadership and HR teams to identify and manage non-financial misconduct effectively.
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