The Senior Managers Regime and the quest for growth

Posted: 22/07/2025

Last week there was a lot of activity in the world of financial services as Rachel Reeves set out her Leeds reforms, one of which was to reduce the regulatory burdens imposed by the Senior Managers and Certificate Regime (SM&CR).

The government was elected with a goal of growing the economy. For several economic and political reasons this goal is looking rather distant and indeed, the goodwill and confidence the government enjoyed a year ago is now questionable.

That said, these proposed reforms are not kneejerk reactions; they are subject to consultation and have taken much time in the planning. Their structure is set out in two phases, the first being the period prior to the government's proposed abolition of certain legal requirements of SM&CR under the Financial Services and Market Act 2000 (FSMA). The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have made modest proposals to streamline the existing system over this Phase 1 period. If the government goes ahead with abolishing the legal requirements, then Phase 2 will be the implementation of new rules from the regulators that are aimed at reducing burden and complexity. 

The consultation that has already taken place identified that SM&CR in its existing form had succeeded in improving governance and accountability but that it could be streamlined. It recognised that high regulatory standards are good for the appeal and competitiveness of the City as a global financial services centre but that it has a heavier compliance burden than other financial centres. The FCA has the secondary objective of international competitiveness and growth. This objective has a strong influence on the proposals. The aim of the Treasury and regulators is to reduce the burdens of SM&CR by 50%. 

The proposals to be consulted on:

The government

Senior Managers 

• Reducing the number of Senior Managers, particularly for smaller firms.
• Allowing for certain Senior Manager functions not to require pre-approval by the regulators. Instead, individual firms will have to ensure that persons holding these functions meet fitness and proprietary standards (is this a new certification regime, albeit one much more limited in scope?).

Certification Regime

• Remove the regime from FSMA, specifically:
  • the duty on a firm to ensure that a person is certified as fit and proper to carry out the role;
  • the removal of annual certification.

The FCA

Phase 1 – streamlining

Senior Managers

• The 12 week period allowing cover for a Senior Manager without FCA approval will now apply to a firm making an application for SMF approval rather than having to have that person approved by the regulator within the 12 week period.
• Simplifying Form A and improving the guidance.
• Extending the validity period of criminal record checks from three months to six months.
• Allowing for periodic submissions, 'at least every six months' of updates to Statements of Responsibility rather than having to do so at the time of each change.
• Clarifying the role of an SMF7 – group entity Senior Manager, and the more general SMF18 – other overall responsibility.
• Raising the threshold for classifying as an Enhanced SM&CR firm.

The Certification Regime

The scope of it will not yet be reduced but:

• removal of duplication in certification; someone does not need to be certified twice for separate functions.

The Code of Conduct

• Clarification that where someone is suspended in order to carry out an investigation into a potential Conduct Rule breach, this is not reportable in itself as a Conduct Rule breach under SUP 15.11.

Regulatory references

• These are unlikely to be pared back immediately – but a previous employer will now have four weeks to respond to a reference request in order to speed up the new employer's recruitment process. 

Phase 2

The core to the reforms:

• reducing the number of Senior Manager roles;
• not all Senior Manager roles will need pre-approval by the regulator;
• the Senior Manager application process will be further streamlined;
• Statements of Responsibility and Prescribed Responsibilities will be simplified; and
• designing a streamlined regime to replace the current process of certification. 

The PRA

The PRA consultation paper broadly reflects that of the FCA but does not agree with the four week window for regulatory references saying that a firm needs adequate time to prepare the reference. It also wants to clarify that current annual certification can use internal systems and formats.

Overview

Above all else it is the anticipated removal of the Certification Regime that is of note. The consultation suggested that the existing regime covers too many roles. The FCA supports the intention of the Treasury to replace the Certification Regime and aims to achieve a situation where fitness and propriety is ensured but without burdening firms.

It is hard to believe we will return to such a light touch of regulation that the infamous 'bad apples' can revert to the short-termism and poor behaviour that led to previous financial crises. We anticipate that the obligation will be on firms to ensure that they have effective management and policies in place even if there is not a certification process. There will still be adequate supervision. It will be interesting to see how the future regulatory references will look, and whether they will be quite so prescribed?

For now, let us hope the government and the regulators get it right and reach their goal of 'proportionality'. The existing regime has been shown to work but the administrative burdens of it are well-known. We have all experienced the potential recruit from overseas being worried as to what will be required of them. But it would be a mistake if anyone believes that oversight and supervision will be done away with.

At the start of this month the government published its paper on tackling non-financial misconduct in financial services. If it was ever needed in the first place, there is now going to be unambiguous clarification that harassment, discrimination and bullying will be a breach of the Code of Conduct, if connected - albeit indirectly - to the workplace. In any event, such behaviour will call into question fitness and propriety. 

So, let us see how long the next regulatory regime lasts, but for now any responses to these proposals should be with the government and/ or regulators by 7 October.

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