This week, we lead with the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA)’s parallel consultations on the next phase of reform to the Senior Managers and Certification Regime (SM&CR). These consultations feature one of the most impactful recent examples that we have seen to date of the regulatory simplification agenda, with the PRA describing the package as the most significant change to the regime since its introduction. It shows regulators simplifying rules while keeping individual accountability clear.
Meanwhile, the FCA consults on its Financial Crime Guide to reflect new risks from artificial intelligence (AI), cryptoassets and sanctions.
Next, the PRA outlines plans for a new five-year strategy built on resilience, growth, innovation and transparency, and signals more consultation to come. Elsewhere, an FCA review of private markets shows why conflict controls must grow in step with the business.
We conclude this week with the Bank of England and the FCA’s latest survey on AI, which shows use now reaches most firms and leans heavily on third parties.
The FCA and PRA have published parallel consultations, CP26/37 and CP14/26, on the second phase of SM&CR reform. The PRA describes the package as the most significant change to the regime since its introduction.
Key proposals include:
Firms stay responsible for the competence and suitability of their staff. Comments close on 22 January 2027 with final rules expected in the first half of 2027.
Read more on SM&CR Phase 2 reform
The FCA is consulting on changes to its Financial Crime Guide in CP26/38. It wants the Guide to keep pace with emerging risks from AI, cryptoassets and evolving sanctions regimes. The Guide applies to all firms the FCA supervises for financial crime, including Annex 1 financial institutions and cryptoasset businesses.
The proposed changes cover:
The FCA is also exploring standalone guidance, published without prior consultation where it is not required, to be added to the Guide later. Responses are due by 24 December 2026.
Read more on the Financial Crime Guide update
Katharine Braddick, Chief Executive of the PRA, used her first Mansion House speech to set out the regulator’s direction for its second decade. The PRA will publish its first five-year strategy next year, built on four priorities: resilience, growth, innovation and transparency.
On resilience, the PRA will create a new directorate for operational and cyber resilience. It will also consult jointly with the FCA on a supervisory statement by the end of the year. On growth, it will develop a framework for its secondary competitiveness and growth objective. The PRA will consult in spring 2027 on changes to improve firms’ access to a modelled approach for residential mortgages, which will be subject to challenge by an independent panel of industry and regulatory experts.
Read more on the PRA’s second decade
The FCA has published findings from a multi-firm review of how private market firms identify, manage and disclose conflicts of interest. The review covered private equity, private credit and real estate. It found some evidence of good practice, including strong governance, effective oversight and independent challenge. However, standards varied, and some firms did not identify conflicts adequately or keep controls up to date. Recurring weaknesses appeared in cross-fund transfers, multi-party transactions, gifts and entertainment, and information barriers.
The FCA expects firms to identify, record, manage and disclose conflicts, and to show that investors receive fair treatment. This matters most where investors rely heavily on a firm’s judgement and controls. Separately, the FCA is examining governance and conflicts concerns where private credit funds consumer litigation claims.
Read more on conflicts of interest in private markets
The Bank of England and the FCA have published the fourth joint survey report on AI in UK financial services. 86% of respondents reported using AI, up from 75% in 2024, and 94% of respondents reported having at least one AI system in production. Generative AI accounted for 56% of all reported AI systems, compared with 17% for foundation models in 2024. Some 80% of respondents reported having AI agents deployed while a further 14% reported plans to deploy them over the next 12 months.
Third party implementations accounted for 39% of all reported AI systems and account for 53% of high-materiality AI systems, with responses indicating a higher degree of concentration in cloud and compute hosting providers than in model API/hosting providers.
The highest-rated areas of perceived risk to firms from AI today were data protection and security, third-party and supply chain risk, and GenAI-specific risks, with oversight of third-party AI systems being the most commonly reported area of governance uncertainty or implementation challenge. Human approval, pre-deployment review, and vendor due diligence were each reported by more than 90% of respondents. However, ongoing monitoring, leakage testing and periodic review or recertification were only reported by around half of respondents.
Most firms expect evolving frontier AI cyber capabilities to have a moderate or high impact on their firm’s risk profile within the next two years.
The FCA and PRA's Phase 2 consultation on SM&CR proposes a series of reforms designed to streamline regulatory requirements, reduce administrative burdens and support UK competitiveness while maintaining accountability standards. The article examines the key proposals, the potential impact on firms, and the practical steps organisations should consider as the reforms progress.
The FCA’s final UK SRS rules introduce new ISSB-aligned sustainability and climate disclosure requirements from 2027. Explore the key changes, scope, transitional reliefs and practical steps for implementation.
A looks at the FCA's new wind-down planning requirement for cryptoasset firms as the authorisation gateway opens, and why firms should start preparing their wind-down plan now.