SM&CR Reforms 2026: What the New Rules Mean for Firms

ByOfficer

Last updated: April 2026

If your firm has a UK-regulated entity, your compliance team just got a stack of SM&CR changes to implement. On 22 April 2026, the FCA and PRA jointly published policy statements confirming phase 1 of the Senior Managers and Certification Regime review. Most changes take effect on 24 April 2026. That is not a typo. Two days’ notice.

The SM&CR reforms 2026 reduce the number of certification roles by roughly 15%, raise the enhanced firm thresholds by 30%, and give firms more time on everything from application submissions to directory updates. The core accountability principle stays. The administrative overhead shrinks. At least, that is the stated aim.

For EU-based groups with UK branches or subsidiaries, these changes affect how you manage your UK senior manager applications, statements of responsibilities, and annual certification rounds. For purely domestic UK firms, the impact is more immediate: you may already need to reclassify some individuals.

Related reading: ESMA and EBA Suitability Assessment Guidelines

What Triggered the SM&CR Review

The SM&CR has been in place since 2016 for banks and insurers, extended to solo-regulated FCA firms in 2019. It replaced the Approved Persons Regime with a structure built around three tiers: Senior Managers who require pre-approval, Certified Persons whose fitness and propriety firms must assess annually, and Conduct Rules that apply broadly across staff.

The regime was never light. Firms running it properly maintain statements of responsibilities, management responsibilities maps, annual certification cycles, conduct rule training records, and a public directory. For groups with multiple UK-regulated entities, the overlap between certification functions across entities became a compliance project in itself.

In December 2022, the Government announced the Edinburgh Reforms, which included a commitment to review the SM&CR. In March 2023, the FCA and PRA published Discussion Paper DP23/3, inviting views on the regime’s effectiveness and proportionality. The Treasury ran a parallel Call for Evidence. Both attracted substantial feedback, the consistent theme being that the regime’s principles were sound but its operational burden was disproportionate, particularly for smaller firms and for groups managing overlapping requirements across entities.

In July 2025, the regulators published consultation papers: the FCA’s CP25/21 and the PRA’s CP18/25. The consultation closed on 7 October 2025. These policy statements are the result.

Phase 1 SM&CR Reforms: What Changes on 24 April 2026

The FCA’s PS26/6 and the PRA’s PS12/26 confirm the following changes, most effective immediately from 24 April 2026.

The 12-Week Rule

Previously, firms had to obtain FCA approval for a senior manager within 12 weeks. Now firms have up to 12 weeks to submit the application itself when there has been an unexpected or temporary change. This matters when someone leaves abruptly and you need an interim arrangement. The old rule created situations where firms would rush applications with incomplete documentation just to meet the deadline. The new framing gives breathing room for the submission, not for the approval itself.

Where teams get this wrong: assuming the 12-week clock is now a 12-week approval window. It is not. The FCA still targets a 2-month statutory deadline for determinations. The change is about when you must file, not when you get an answer.

One extension worth noting: the individual performing the SMF role under the 12-week rule is subject to the Senior Manager Conduct Rules both during the 12-week period and during FCA consideration of the application. Interim SMF holders do not sit outside the accountability framework while awaiting approval.

Certification Role Reduction

The reforms remove the need to certify individuals into multiple overlapping functions. If a person holds a certification function in one capacity that already covers their responsibilities in another, they no longer need dual certification. The FCA estimates that firms could reduce their total certification population by around 15% if they fully take advantage of the new flexibility to remove overlaps. The 15% is an achievable target, not an automatic outcome. Firms still have to map their current certification register against the updated rules and actively consolidate duplicate entries.

The practical effect is largest for groups. A compliance officer certified under the CASS oversight function at one entity who also performs a similar role at an affiliated entity no longer needs separate certification for each overlap. I have seen firms maintain spreadsheets with 200+ certification entries where a quarter were effectively duplicates. Those entries can now be collapsed.

The trap here: the underlying fitness and propriety assessment still applies to the full scope of the person’s activities. Reducing the number of certification labels does not mean reducing the substance of what you assess. If you cut your certification register without reviewing whether the remaining entries actually cover the full scope, you create a gap.

Lighter Annual Certification Process

The annual fit-and-proper certification process gets lighter. The reforms simplify the checks firms must perform. The detail matters for how you document the assessment: firms can take a more proportionate approach to annual recertification where there have been no material changes in the individual’s circumstances or role.

This does not mean you skip the assessment. It means your process can distinguish between a full recertification and a confirmation-of-no-change review. Firms that treat every annual cycle as a full reassessment from scratch will benefit most. Firms that already had a risk-based tiering approach may see less difference.

Enhanced Firm Thresholds Raised by 30%

Enhanced SM&CR firms face additional requirements: more prescribed responsibilities, more granular management responsibilities maps, and additional reporting obligations. The thresholds for qualifying as an enhanced firm were set in 2019 and had not been adjusted for inflation.

The 30% increase means some firms that currently sit just above the enhanced boundary will drop below it. For these firms, the change is significant. They shed the additional prescribed responsibilities and can simplify their management responsibilities maps.

The specific new thresholds include AUM rising to £65bn (from £50bn), intermediary regulated business revenue rising to £45m (from £35m), and regulated consumer credit lending rising to £130m. The FCA estimated in CP25/21 that approximately 20 to 30 firms out of roughly 550 currently enhanced firms will drop below the new thresholds. The thresholds will also be reviewed every five years to track inflation, which is new.

What this does not change: if you are a large, complex firm that was clearly in the enhanced tier, the threshold adjustment makes no difference. This matters at the margin. If your revenue or assets sit within 30% of the old threshold, check your classification now.

SMF 7 and SMF 18 Clarifications

SMF 7 (Group Entity Senior Manager) and SMF 18 (Other Overall Responsibility) have been sources of confusion since the regime launched. The reforms clarify when these functions are required and what responsibilities they cover. SMF 18 in particular was a catch-all that firms used differently depending on how they interpreted the overall responsibility requirement.

The common error: firms applying SMF 18 to anyone with a significant area of responsibility, even where that responsibility falls squarely within another defined SMF. The clarification should narrow who actually needs SMF 18 approval, but only if firms review their current allocations against the updated definitions rather than leaving legacy assignments in place.

Criminal Record Checks

The validity period for criminal record checks moves from 3 months to 6 months prior to application submission. Under the old rule, a DBS check had to be dated within three months of the SMF application, which forced firms to rerun checks when hiring took longer than expected. The change also removes the requirement for a new CRC when an existing SMF holder moves to another SMF within the same firm or group. That intra-group carve-out is the bigger operational win — internal transitions of already-vetted senior managers no longer trigger duplicate screening.

Directory Update Timelines

Firms now have more time to update the directory of certified and assessed persons. The directory, introduced in 2020, lists individuals who hold certification functions and their conduct rule status. The extended timeline acknowledges that directory updates often lag behind internal HR and compliance processes.

Statements of Responsibilities: Periodic Submission

Firms must still keep Statements of Responsibilities up to date internally at all times. What changes is submission to the FCA. Under the old rule, firms had to submit updated SoRs using Form J whenever there was a material change. The reforms allow periodic submission, no later than every 6 months after the last submission. Solo-regulated firms only submit the current SoR and not any interim versions created in between. Dual-regulated firms follow a different PRA variant requiring all updated versions to be submitted at each cycle.

The common trap: treating “periodic submission” as “periodic update.” Internal SoR maintenance still has to happen in real time. If a misconduct event occurs, the FCA will ask to see the SoR that applied at the relevant point — not the one submitted six months later.

Regulatory References

The guidance timeframe for responding to regulatory reference requests shortens from 6 weeks to 4 weeks. This cuts the bottleneck that most commonly held up SMF hiring. The operational implication is that HR and compliance functions at firms giving references need to tighten internal sign-off processes. For firms receiving references, the faster turnaround should reduce the gap between offer and approval.

Changes Effective Later in 2026

Regulatory Reporting and Process Changes: 10 July 2026

Improvements to regulatory reporting and processes take effect from 10 July 2026. The FCA states this gives firms and regulators time to adjust systems and procedures. The detail of what changes in reporting is in PS26/6 itself, covering how firms notify the FCA of updates to senior manager responsibilities and statements of responsibilities.

Non-Financial Misconduct Alignment: 1 September 2026

Changes aligning SM&CR with PS25/23 on tackling non-financial misconduct in financial services apply from 1 September 2026. This integrates the conduct rules framework with the updated expectations around bullying, harassment, and discrimination. Firms that delayed implementing PS25/23 changes pending the SM&CR review now have a hard date.

Phase 2: What the Government Proposes Next

The Treasury published a consultation response on 22 April 2026 alongside the regulatory policy statements. It outlines proposals for a second phase of reform, contingent on legislation.

Two proposals stand out. First, removing the Certification Regime from legislation entirely. This would not necessarily eliminate certification as a concept, but it would give the FCA and PRA flexibility to replace it with something more proportionate. Second, giving regulators more freedom to reduce the number of Senior Management Functions requiring pre-approval.

Two more proposals matter for planning: a new power for regulators to specify circumstances where a firm notifies them of a senior manager appointment after its own fitness-and-propriety assessment, instead of requiring pre-approval; and a reduction in the statutory deadline for determining SMF applications from 3 months to 2 months. The FCA and PRA are already reporting against the 2-month target on a voluntary basis, so the legislative change would align statute with emerging practice rather than force a step change.

The Government frames this as part of the “Leeds reforms” aimed at halving the SM&CR’s regulatory burden. The regulators plan to consult on wider phase 2 changes later in 2026 once legislative changes are in place.

What this means practically: phase 1 is real and happening now. Phase 2 is a policy intention. Do not redesign your entire SM&CR framework around phase 2 proposals. Implement phase 1, then adjust when phase 2 rules are confirmed.

Cross-Border Angle: Why EU-Based Groups Should Pay Attention

The SM&CR is a UK-only regime. It does not apply to EU-regulated entities directly. But EU banking groups, fund managers, and insurance companies with UK subsidiaries or branches manage SM&CR alongside their EU governance obligations.

The EU equivalent is not a single regime. EBA and ESMA suitability assessment guidelines under CRD cover management body composition and key function holders, but the structure is different. The EU framework focuses on collective suitability of the management body, while the SM&CR emphasises individual accountability with mapped responsibilities. CRD VI strengthens individual accountability and suitability assessment requirements, which narrows the gap with the SM&CR model without fully replicating it. The EBA RTS on suitability due by 10 July 2026 under Article 91(10) will further harmonise expectations around individual assessments and the documentation that supports them.

For Luxembourg-based groups with a UK branch, the practical question is how the 30% threshold increase and certification role reduction affect your UK-side compliance operations. If the UK branch drops out of the enhanced tier, the prescribed responsibilities that were previously mandatory become optional. This simplifies cross-border governance mapping, but it requires your Luxembourg head office to decide whether to maintain the enhanced standards voluntarily for consistency or take the relief.

Frequently Asked Questions

When do the SM&CR reforms take effect?

Most phase 1 changes take effect on 24 April 2026. Regulatory reporting and process improvements apply from 10 July 2026. Non-financial misconduct alignment under PS25/23 applies from 1 September 2026.

Which firms are affected by the SM&CR reforms?

All solo-regulated and dual-regulated firms in scope of the SM&CR, including third country branches. Dual-regulated firms should read both the FCA’s PS26/6 and the PRA’s PS12/26.

Does the Certification Regime still apply?

Yes. Phase 1 reduces the number of overlapping certification roles by roughly 15% and simplifies the annual assessment process. The Government has proposed removing the Certification Regime from legislation in phase 2, but that has not happened yet and requires new legislation.

What does the 30% enhanced threshold increase mean?

The financial thresholds for qualifying as an enhanced SM&CR firm have been raised by 30% to reflect inflation since 2019. Firms near the old boundary may no longer qualify as enhanced, which reduces their prescribed responsibility and reporting obligations.

How does the 12-week rule change work?

Firms now have up to 12 weeks to submit a senior manager application when there has been an unexpected or temporary change. Previously, the 12 weeks was the deadline for FCA approval. The change gives firms more time to prepare the application, not more time for the FCA to decide.

What happens to phase 2 of the SM&CR reforms?

The Treasury has outlined proposals including removing the Certification Regime from legislation and giving regulators more flexibility to reduce the number of SMFs. The regulators plan to consult on broader phase 2 reforms later in 2026, but these depend on legislation being passed first.

Do these changes affect EU-regulated firms?

Not directly. The SM&CR is a UK regime. But EU-based groups with UK subsidiaries or branches need to assess how the changes affect their UK operations, particularly the enhanced firm threshold and certification role reductions.

Related Articles

Key Takeaways

  • The FCA (PS26/6) and PRA (PS12/26) confirmed phase 1 SM&CR reforms on 22 April 2026, with most changes effective from 24 April 2026.
  • Certification roles reduce by roughly 15% as overlapping functions are consolidated. The underlying fitness-and-propriety assessment scope does not shrink.
  • Enhanced firm thresholds rise by 30%, reflecting inflation since 2019. Firms near the old boundary should reassess their classification immediately.
  • The 12-week rule now gives firms 12 weeks to submit an application after an unexpected change, not 12 weeks for FCA approval.
  • Regulatory reporting process changes apply from 10 July 2026. Non-financial misconduct alignment applies from 1 September 2026.
  • Phase 2, including possible removal of the Certification Regime from legislation and further SMF reductions, depends on new legislation. The regulators plan to consult later in 2026.
  • EU-based groups with UK operations should assess whether the threshold changes affect their UK entity’s enhanced status and adjust their cross-border governance mapping accordingly.

Sources and References

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.

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