SM&CR reform – less paperwork, same accountability

The PRA and FCA have published their final policy statements on phase 1 SM&CR reform, with minimal changes from their earlier consultation papers. Broadly welcomed by the industry, the reforms aim to reduce the cost of compliance and ensure proportionate regulation. The majority of changes take effect from 24 April 2026, but some come into force on 10 July 2026.

While implementing the SMC&R changes, it’s also essential to consider HM Treasury’s Phase 2 consultation response. Subject to legislation, the proposed

updates would give the regulators greater ownership over SMC&R, for more responsive supervision, and further consultations are expected from the PRA and FCA later this year. 

Flexibility over the 12-week rule

Under the new rules, firms have 12 weeks to submit an SMF application rather than 12 weeks to secure regulatory approval for a temporary or unforeseen vacancy. This gives firms more time to appoint an appropriate candidate, but it doesn’t replace the need for robust succession planning, and the rule should be used sparingly.

To maintain accountability and oversight during those 12 weeks, firms still need to transfer prescribed responsibilities to another SMF and update the internal Statement of Responsibilities (SoRs) accordingly. There’s no need to submit updated SoRs to the regulator until those 12 weeks have passed.

Solo regulated firms must report conduct breaches by non-SMFs as soon as practicable, and dual regulated firms must report to the PRA using form L.

Criminal record checks

Moving forward, criminal record checks will be valid for six months rather than three, easing pressure on hiring timelines. Similarly, firms won’t usually need to obtain a criminal record checks for internal or intra-group SMF moves as they’re required to disclose this information while in post.

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Updating SoRs and management responsibility maps 

Firms have up to six months to submit updated SoRs and management responsibilities maps. Where there are iterative changes during that period, both dual and solo regulated firms just need to submit the most current one – although they may submit more frequently if preferred.  

Changes to SMF7 and SMF18 roles 

The PRA’s final policy statement has extended the Group Entity Senior Manager (SMF7), to controllers or their representatives, and given further guidance over its application. The position covers those with active influence over the company (including individuals working at a group level) if they play key role in implementing the strategy, or exert significant influence over the UK-regulated entity. It doesn’t capture individuals who play a broader role in shaping the group strategy.

While firms are responsible for identifying those individuals, the PRA will identify them in exceptional circumstances and firms must promptly apply for their approval. 

For solo regulated firms, the FCA has not extended the SMF7 role to include controllers and has reiterated that those with group-level oversight or strategic roles are not automatically in scope. 

Meanwhile, the FCA has changed its rules on prescribed responsibilities to allow firms to allocate them to SMF18s. 

Certification regime 

The FCA has adopted its proposed SM&CR changes to the certification regime, as per the consultation. The key changes are digital certification and no further need to recertify individuals who hold more than one role (the FCA will remove duplicates on the Directory). 

Changes to Directory timelines 

Firms will now have 20 business days to update most information in the Directory, with seven for staff departures – adopted as per the consultation.  

Regulatory references 

Firms should provide regulatory references within four weeks (previously six), to reduce recruitment delays. The FCA has also provided further guidance on disclosing instances of suspected misconduct where an individual has left a firm before the conclusion of the investigation. 

Updated thresholds for enhanced SM&CR firms 

The FCA’s updated the thresholds to become an enhanced SM&CR firm by 30%, which taken effect from 10 July 2026. This reflects inflation and the FCA will create a mechanism to update these threshold every five years for ongoing proportionality. They may be updated further in Phase 2.   

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HMT’s changes: Phase 2 

Phase 1 of SM&CR reform has focused on quick wins to reduce the regulatory burden in the short term. HMT’s proposed Phase 2 changes will be more impactful, and focus on removing legislative requirements to allow regulators to set their own requirements in the following areas: 

• Certification regime – removing it from primary legislation to let regulators design a more proportionate framework
• SMF approvals – reducing the number of roles requiring regulatory approval, letting regulators move to a notification model in some instances
• Statements of Responsibilities – repealing prescriptive legislative provisions to allow regulators to set more flexible rules
• Conduct rules – repealing legislation on breach notification and mandatory training, enabling regulators to set their own guidance Allowing regulators to specify conditional or time-limited SMF approval without triggering statutory notice requirements 

As Phase 2 reforms are introduced, HMT will also align the SM&CR regime for FMI firms (legislated in FSMA 2023). 

Next steps 

When implementing Phase 1 SM&CR reforms, it’s essential to remember that although processes are changing – accountability is not. Firms need to ensure their updated processes are robust and fit for purpose, while proactively considering Phase 2 changes to reduce duplication of effort. 

The majority of the above reforms are effective now, but changes to enhanced SM&CR scope, removal of duplicate certifications and amendments to SMF18 come into force on 10 July 2026. Key actions to get started include: 

• reviewing current SMF roles, statements of responsibility and prescribed responsibility allocation, updating as needed to reflect changes to SMF7 and SMF18
• assessing operational processes and procedures to support key governance documents such as statements of responsibilities and management responsibility maps
• reviewing succession processes and plans for interim SMF appointments to avoid reliance on the 12-week rule
• rationalising certification processes to reduce duplication and updates timeframes, particularly around criminal record checks and regulatory references.

For further information on SM&CR reforms contact Kantilal Pithia, Supriya Manchanda or Irina Velkova.